Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioural 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 maximise 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

People often fall into the "sunk cost fallacy," where they irrationally consider sunk costs (like the purchase price) when making decisions, even though these costs should not affect future economic decisions.

Standard Economic Theory Asserts That Sunk Costs Are Irrelevant in Making