Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?
A)People measure the value of a good in terms of its purchase price.
B)Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value.
C)If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.
D)Sunk costs have a higher opportunity cost than costs that can be recovered.

Question

Quizplus · Accepted Answer

Behavioral economics suggests that people often irrationally consider sunk costs, such as the purchase price, when making decisions, even though these costs should be irrelevant according to standard economic theory.

Standard Economic Theory Asserts That Sunk Costs Are Irrelevant in Making