Sunk costs are relevant to decisions

Definition: Sunk costs have already been incurred and cannot be recovered. Rational decision-making should focus only on future incremental costs and revenues …

Reality

Sunk costs have already been incurred and cannot be recovered. Rational decision-making should focus only on future incremental costs and revenues (relevant costs). Including sunk costs leads to the sunk cost fallacy.

Why It MattersUnderstanding why "sunk costs are relevant to decisions" is a misconception helps avoid analytical errors and improper financial decision-making.
CategoryDecision Making

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