Saturday, July 21, 2007

Economics term of the day: Sunk Costs

Atrios recommended reading up on the term "sunk costs". Wikipedia is of course the font of all knowledge:
In economics and in business decision-making, sunk costs are costs that have already been incurred and which cannot be recovered to any significant degree. Sunk costs are sometimes contrasted with variable costs, which are the costs that will change due to the proposed course of action. In microeconomic theory, only variable costs are relevant to a decision. Economics proposes that a rational actor does not let sunk costs influence one's decisions, because doing so would not be assessing a decision exclusively on its own merits.
A useful term to know when discussing what our future involvement in Iraq should be.

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