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 is just a cost that cannot be recovered so it shouldn’t be used in decision making. Eg you paid to see a movie and you have watched half of it but you aren’t enjoying it. You also can’t get a refund. The sunk cost is the amount you paid and the time already spent. So in deciding if you want to leave the theater or watch the rest of the movie you shouldn’t be using the fact that you paid or the time spent as a reason to stay since those costs are not recoverable.
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