A sunk cost is fixed with respect to the current choice. If a company has paid for a study that cannot be refunded, selecting Project A instead of Project B does not cause that payment to be incurred again. The study's conclusion may contain useful evidence; its price does not become an incremental benefit of continuing the project.
“Ignore sunk costs” is too broad. The amount may still require recognition, classification, impairment analysis, disclosure, audit evidence, tax treatment, or investigation. It can reveal flaws in the original process and inform how future approvals should work. What it should not do is receive decision weight merely because abandoning the project feels like wasting the past payment.
Sunk relative to what?
A contract deposit may be nonrefundable under one alternative but recoverable under another. Specialized equipment may have no use in the current project yet have resale or redeployment value. Those recoverable values are not sunk. State the decision date, alternatives, rights, and exit options before classifying a cost.
The sunk-cost error is a reasoning pattern, not proof of irrationality whenever someone continues after losses. New information, strategic options, switching costs, reputation effects, or legal duties may justify continuing. The analyst must test those future consequences directly.
Put the concept to work
Analyze this concept
- Exclude an unchanged past sacrifice from a forward-looking marginal choice while explaining where that amount still matters for reporting, accountability, learning, or contractual analysis.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Choice — Apply
To analyze this concept: Required. Whether a cost is sunk depends on which current alternatives are being compared.
- Opportunity cost — Apply
To analyze this concept: Helpful. A sunk amount is contrasted with a sacrifice created by selecting one current alternative over another.