Have you ever been in a situation where you went to watch a movie in the theatre what is share market, however, it turned out to be terrible? What did you do next? Did you walked out of the theater or continued watching it till the end because you were afraid that you have already paid for the ticket? If you choose the latter, you have fallen for the sunk cost fallacy.
In this post, we are going to discuss what exactly is a sunk cost fallacy and how it can affect your investment decisions. But first, let us understand what are sunk costs.
What are sunk costs? what is share market
Sunk costs are those irrevocable costs which have already been occurred and cannot be retrieved. Here, the costs can be in term of your money, time or any other resource.
For example- Let’s suppose that you bought a brand new machine what is share market. However, after using it for three months, you realize that the machine is not actually working as you desired. And obviously, the return period of the machine has surpassed. Here, even if you sell the machine, you will get a depreciated value compared to what you originally bought. This cost is called the sunk cost.
In general, people should not consider sunk costs while making their decisions what is share market as these costs are independent of any happenings in the future. However, humans are emotional being and unlike robots, we do not always make rational decisions.
Examples of Sunk Cost Fallacy
Sunk cost fallacy, also known as Concorde fallacy, is an emotional situation where the individuals take sunk costs into consideration while making the decisions.
We have already discussed the example of watching the entire movie (even if it is terrible) just because you what is share market, as a consumer, won’t get back the money of your ticket. This is a classic example of sunk cost fallacy.
Another example can be when you eat foods that you do not like because you have already bought that food and cannot revoke that sunk cost what is share market. Similarly, overeating after ordering foods in restaurants because food has been already ordered is also an example of sunk cost fallacy.
Further, a typical example of the same fallacy is when you keep attending the miserable classes what is share market of your college (that you do not enjoy) because you have already invested a lot of time in that course and also have paid the tuition fee. Besides, salaries, loan payments etc are also considered as sunk costs as you cannot prevent these costs.