In
economics and in business decision-making, sunk costs are
costs that have already been incurred and which cannot be recovered to any significant degree. Sunk costs are sometimes contrasted with
variable costs, which are the costs that will change due to the proposed course of action. In
microeconomic theory, only variable costs are relevant to a decision. Economics proposes that a rational actor does not let sunk costs influence one's decisions, because doing so would not be assessing a decision exclusively on its own merits. It is important to note that the decision-maker may make rational decisions according to their own incentives; these incentives may dictate different decisions than would be dictated by efficiency or profitability, and this is considered an incentive problem and distinct from a sunk cost problem.
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