Which option best illustrates the sunk cost concept in business?

Which option best illustrates the sunk cost concept in business?

• A. Sunk cost
• B. Loss aversion
• C. Irrational continuation
• D. Emotional investment

Answer: (A)

Sunk costs are expenses that have already been incurred and cannot be recovered. In business decisions, the rational move is to ignore these past costs and focus on future costs and benefits when deciding whether to continue or abandon a project. Naming the option as “Sunk cost” directly identifies the concept—the kind of cost that should not drive future choices. The other terms describe related ideas but don’t name the concept itself: loss aversion is about fearing losses, irrational continuation describes a behavior caused by sunk-cost thinking, and emotional investment refers to personal feelings rather than the financial principle.

Sunk costs are expenses that have already been incurred and cannot be recovered. In business decisions, the rational move is to ignore these past costs and focus on future costs and benefits when deciding whether to continue or abandon a project. Naming the option as “Sunk cost” directly identifies the concept—the kind of cost that should not drive future choices. The other terms describe related ideas but don’t name the concept itself: loss aversion is about fearing losses, irrational continuation describes a behavior caused by sunk-cost thinking, and emotional investment refers to personal feelings rather than the financial principle.