A software firm has invested $\$ 2$ million into the development of a new computer program. The firm is well aware that their ability to attract future investors heavily depends on the completion of this project. The firm has calculated that completing the project will result in a loss of $\$ 1$ million, but continue anyways. The only explanation for the firm's behavior is the sunk cost fallacy.

Question

Quizplus · Accepted Answer

The firm's behavior can also be explained by their concern for their reputation. In continuing with the project, the firm makes a trade-off between current profit (the loss of $\$ 1$ million on the project) and future profit (the ability to attract future investors).

A Software Firm Has Invested $2\$ 2$2 Million into the Development of a New Computer Program

A Software Firm Has Invested $\$ 2$ Million into the Development of a New Computer Program