What is Sunk Cost, and does it apply to me?
Sunk Cost is the idea that once a dollar is spent, it’s gone and shouldn’t be considered when deciding whether or not to spend future dollars. A good example is as follows: Let’s say you’ve spent $100K on a game, and that’s what you thought it would take to do the whole thing. But now, your engineering team says you need another $50K to finish it to a point that you won’t be embarrassed to put your company’s name on it. Well, the $100K you’ve already spent is gone, or “sunk.” The only relevant number you now need to consider is the remaining $50K—and how that $50K compares to revenue you expect to generate. In other words, after sinking another $50K into this game, how much money can you expect the game to generate? What if it’s not the full $150 you will have spent by then? What if you think the game will generate only $60K total net revenue? The inclination may be to cancel it now, but, in actuality, the theory says different. Unless you think that the $50K can be better spent elsewh
