Sunk costs

Sunk costs ( German: sunk costs, often referred to as sunk costs ) are costs that have already been incurred and not ( for example, by sale ) can be reversed.

This includes both contain costs, which have already led to withdrawals, as well as those future costs that will be incurred irrevocable. Its central feature is that they can not be influenced in the present and in the future - hence the term " lost ". Comparisons to the concept of so-called EDA costs.

Since sunk costs exist regardless of a decision-maker chooses the option, they may at a rational choice between alternative courses of action will not be considered and thus represent decision irrelevant costs

Ex -ante approach

Costs (ex post) as sunk costs turn out in a subsequent decision situation can in an earlier decision situation, especially in front of their seizures (ex ante), have decision-relevant costs shown.

Example: Two companies A and B of the telecommunications vying for a national fixed line market; A provider I have an up telephone network, while provider B such would have to build. For B, the cost of building the network are relevant to the decision, in contrast to A, so B will exit the market are more likely than A. Irreversible costs are therefore considered in the theory of competition as an important reason for the emergence of monopolies.

" Sunk costs " and rational behavior

Because individuals do not always act as homo economicus, are sunk costs often afterwards (ex post) noted - from a rational point of view unjustifiably. Thus, they can distort the economically optimal decision-making process (from the perspective of the decision maker ).

Demarcation from eternity costs

Similarities, but also significant differences, there is the concept of eternity costs. The latter are consequential costs, such as the arise after termination of mining operations or the use of nuclear energy or will remain, and will incur at least for a long time. However, eternity costs are only partially " sunk costs " - and then, when they will arise in the event of continued operation of a mining plant or a nuclear power plant. In this case they are lost in the sense that as their trigger is in the past and they can not be undone. Examples are the costs for the continuous pumping of groundwater, the anticipated costs of damage to structures by soil settlement or disposal of fuel elements.

Not sunken eternity costs such as costs of the restoration of a mining landscape, because these costs are not inevitable, but rather only in the event of closure of the plant. Consequently, they are relevant to the decision and therefore not absorbed.

Examples

Sunk costs can arise if the forecasts (for example, an investment project ) made ​​in the planning not to arrive at the realization ( for example, via the sale of products or the amount of costs). The expenses initially made ​​then make a sunk cost, since they no longer can be undone, and therefore can not be affected by future decisions.

For larger realized in several phases projects (eg transport projects ) are sometimes created Bauvorleistungen for any other sections in the realization of the first sections. The cost of these inputs represent sunk costs dar.

Product launches on the market are often associated with high costs. Flop the product, you should not ( left or withdraw product in the market ) already invested costs in the decision include, but look only to the future possibilities.

Stock market investors are basing their selling decisions often because the prices they bought a stock. However, the price at which one has gone into the past is irrelevant to the assessment of the performance of the stock in the future.

• Decision Theory
• Industrial and organizational psychology