Ignore Sunk Costs

Mar 8, 2022

On the first and last days of my high school microeconomics class, Mr. Belcaster, my teacher said:

"If you only remember one thing from this class, remember to ignore sunk costs"

Sunk cost is cost that's already been incurred. You can't reverse sunk costs. The time you've already used to learn a skill or the money you've already invested in a business are sunk costs.

The sunk cost fallacy is when we take sunk costs into account when making decisioning. Should you finish a bad book after reading half of it? (There's no time to read bad books). When acting as rational decision makers, our choices should only depend on future or prospective costs. "Don't cry over split milk", or "don't throw good money after bad" are other ways of saying: "ignore sunk costs".

*For what it's worth, I remember a few more things than sunk cost from high school economics!