- noun a cost which has been irreversibly incurred or committed prior to a decision point and which cannot therefore be considered relevant to subsequent decisions.
- noun expenditure on factors which cannot be used for another purpose or cannot be recovered if the firm is shut down. Such expenditure might include advertising or building costs.
(written as Sunk Cost)A cost that has already been incurred. By virtue of their being 'sunk', costs of this kind are not opportunity costs at all as they represent no current or prospective sacrifice that is necessarily entailed in a decision. This does not always mean that they are irrelevant to current decision-making, however, for sunk costs may be thought to hold useful lessons for the future or managerial commitment, especially to major investment projects, may be an important element in the future credibility of the people who make major decisions of that sort. It is a common experience that sunk costs often do weigh heavily with firms and households and it seems preferable to explore the possibility that this is not 'irrational' than to assume without exploration that there is no possibility of its actually being rational.