My wife and I are having a disagreement as to what it means. She says that it means the cost of something you purchased some time ago, and had you not purchased it the money would be gone anyway.
Basically, 3 years ago we decided to purchase something to hold onto and sell later on when the value goes up. She says that the purchase price can be considered as profit since it was so long ago. I disagreed. Anyway, she calls it “sunk cost”.
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“Sunk cost fallacy” is a common term, and probably where one of you heard the term for it to enter the conversation.
It refers to the thought process of “I already spent some money on this. It would be a shame if I stopped spending money on it now.” In other words, throwing “good money after bad money.”
You could imagine the fallacy as “I bought a boat for $100, but then it sunk in the river. Because I don’t want my $100 to be wasted, I’m going to rent a truck for $50 to pull it out. If that truck sinks into the mud, then I’ll buy a different truck for $75 so that my $150 isn’t wasted.” The pattern then repeats.
In your specific conversation, the fact that you bought the investment means it is indeed a “sunk cost”; the fact that you aren’t getting the same money back means it is sunk. If you spend more money on the investment just because you have the investment and are hoping it pays off, you are probably doing a “sunk cost fallacy”. As a term it is entirely different from profit.
Most times, things that “can be considered for profit” use buzzwords and emotions to make people feel better about spending money, and thus spend more money.
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