The transaction cost explanation and prospect theory are two ways to describe the behavior of a consumer who considers a sunk cost when making consumption decisions.

Question

Quizplus · Accepted Answer

The transaction cost explanation focuses on the costs associated with making an exchange or decision, including sunk costs, while prospect theory suggests that individuals value gains and losses differently, leading them to consider sunk costs irrationally in their decision-making process.

The Transaction Cost Explanation and Prospect Theory Are Two Ways