Sunk cost

A sunk cost is an expenditure already made that cannot be recovered. Because it is unaffected by current choices, rational decisions should depend on future costs and benefits instead.

Marginal analysis: A decision method that compares the additional costs and benefits of possible actions. Only costs and benefits that change with the next action belong in the decision.
Fixed cost: A cost that does not vary with the level of output over a specified range and period. Fixed costs may be recoverable or avoidable; they are not automatically sunk.
Avoidable cost: A cost that can be eliminated by choosing a different action or stopping an activity. Unlike a sunk cost, an avoidable cost can change with the current decision.
Alfred Marshall: A British economist whose 1890 textbook helped establish modern microeconomics. Marshall's analysis of business costs helped clarify the distinction between past and prospective costs.
Sunk cost fallacy: The tendency to continue an endeavor because of resources already invested, despite unfavorable future prospects. It describes the central reasoning error associated with sunk costs.
Capital investment: The commitment of funds to acquire or improve long-lived productive assets. Once an investment is irreversible, its unrecoverable portion becomes sunk in later choices.
Opportunity cost: The value of the best alternative forgone when a choice is made. Opportunity costs concern future alternatives, while sunk costs concern unrecoverable past spending.
John Maynard Keynes: A British economist whose work reshaped macroeconomics and economic policy. Keynes emphasized that investment decisions depend on uncertain future returns, not simply historical expenditure.
Escalation of commitment: Continued investment in a failing course of action despite evidence that it is unlikely to succeed. Past investment can encourage decision-makers to commit still more resources to a failing project.
Abandonment option: The option to stop a project and recover value by selling or redeploying its assets. Resale or redeployment can recover part of an apparent sunk investment.

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