What are the sunk costs?

Also known as stuck costs, the sunk costs is any costs or costs incurred in the past and cannot be restored or reversed. Although they sometimes confuse the concept of economic losses, sunk costs more dealing with what has been paid for asset, and not the losses that result from the difference between the original purchase price and the price at which the asset is sold later. The sunk costs do not exist technically until the purchase is made, which will be important to assess the potential of purchase to achieve satisfaction required by the consumer.

One of the simplest ways to understand drowned costs is to consider buying tickets for a sports event. Each ticket carries a specific price that must be paid for the purpose of participating in the event. Potential buyer is considering potential costs in the form of ticket price and then decide whether to actually make the purchase. If it continues with the purchase, the amount of money paid for these tickets is the sunk costs.

If circumstances occur, if the buyer cannot participate in the event, there is no way to reverse the purchase of these tickets; The sunk costs are not a historical fact and cannot be changed. Although it is possible to sell tickets for a certain type of discounted rate, it is likely that it will not be possible to restore the full price of the original purchase. In any case, other ticket sales are considered a transaction that differs from drowned costs because this original purchase has not been canceled or canceled.

The same general approach is used to buy a new car. Any amount paid for the safe ownership of the vehicle represents drowned transaction costs. Although the owner subsequently sells a used vehicle for a smaller amount and partly receives the amount of the initial, this transaction does not change, does not replace or change this original purchase.

in terms of budgeting and general economy,In fact, the sunk costs are not a factor that the buyers are considering. While transactions are considered, the cost of purchase is identified as potential costs. These potential costs will become sunken or stuck costs after completion of the purchase and any opportunity to overturn the purchase. For this reason, financial planners tend to place more emphasis on potential costs in terms of money management, and consider the stuck costs for simply one of the possible results of this decision -making process.