In our daily lives and at work, we often hear the term "sunk costs". So, what exactly are sunk costs? Why does it have such a profound impact on our decision-making? Today, let's demystify sunk costs.
Sunk costs, as the name suggests, refer to those costs that have already been incurred and cannot be recovered. In economics, sunk cost usually refers to resources such as money, time, energy, etc., that have been invested and cannot be siphoned off. These costs, no matter what decisions we make, cannot change the fact that they have already occurred.
To better understand sunk costs, let's look at a simple example. Let's say you buy a movie ticket, but in the process you find out that the movie is not to your taste. At this point, the sunk cost of the movie ticket is the sunk cost, because you can't refund the ticket or recover this part of the cost. When deciding whether or not to continue with the film, you should think about the possible future gains (such as the movie might become interesting) or avoid further losses (such as leaving the theater to do something more meaningful), rather than dwelling on the money you have already spent on movie tickets.
Sunk costs are important because they influence our decision-making. It's often easy for people to focus too much on sunk costs when making decisions, which can lead to irrational choices. For example, in the example above, if you stick to the movie because you don't want to "waste" your ticket money, then you may be ignoring the more important opportunity cost – that you could have used that time to do something more meaningful.
To avoid sunk cost traps, we need to learn to ignore the costs that have already occurred when making decisions and instead focus on the benefits and costs that may arise in the future. In this way, we can make more informed and rational choices.
In conclusion, sunk costs are those that have already been incurred and cannot be recovered. Understanding the concept and impact of sunk costs can help us make more informed decisions when faced with a variety of options. Remember, don't let the past investment affect the future gains, let's be brave and look forward and grasp every new opportunity!