Sunk Costs

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  • Topic: Time, Costs, Sunk costs
  • Pages : 1 (371 words )
  • Download(s) : 92
  • Published : March 9, 2013
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Sunk costs are costs that are irrecoverable. It’s something that you already spent and that you won’t get back, regardless of future outcomes. 

And remember that the greatest example of sunk cost you pay is with your own time, and which you will not be able to recover: all that you lived up until now is gone — you just can’t reclaim that time. Stop clinging to the past and make the most of your life right now. One of the most important lessons about economic costs is that sunk costs are sunk. That means they are in the past and the best thing to do is to just forget about them and not let them affect future decision-making. So as an example of this, in 1988, Apple Computer bought memory chips, speculating that the price of memory was going to rise, and they hoarded a lot of memory chips to use in their future productions. They bought these chips at US$38. It turned out that instead of rising, the price of memory actually fell and very soon after they bought the chips at US$38, it turned out they could have bought them in the open market for US$23. This is a mistake made by Apple; however, companies make mistakes all the time. It is a sunk cost. Nonetheless, Apple, apparently confused by their own accounting, said, "You know, we need to recoup the cost of these chips in our sales of computers”. They marked up the computers or the price of memory in their computers to account for the high price that they paid for the chips. Consumers saw right through this and said, "Well, we can get these chips in the open market for US$23, why should we pay US$38 for them?" Consumers who bought the Apple systems, bought stripped-down versions and then just added their own memory afterwards. 

Immediate gratification bias
Immediate gratification as the name signifies is a bias in which manager makes the decisionon the basis of the outcome by making that choice which will give him the immediate or quick rewards. He ignores the future outcomes and simply give importance to...
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