Examining the Sunk Cost Apory

• In Event: Innovative and Emerging Issues 2

Abstract

Sunk costs form a key part of the management accounting literature, which generally state that since current or future actions cannot change sunk costs, decision makers should ignore them. Thus, ongoing fixed costs or previously incurred sunk costs, while relevant for entry and exit decisions, are irrelevant for pricing decisions. But the organizational behavior literature states that sunk costs do affect decision makers, largely due to decision makers’ emotional attachments to the related project. This conflict in the underlying nature of sunk costs could lead to suboptimal decisions. The purpose of this paper is to discuss this sunk cost conflict both from an accounting and a philosophical framework, so that decision makers can make more optimal choices when dealing with sunk costs.

Authors

• Alan Reinstein, Wayne State University

• Mohamed Bayou, University of Michigan–Dearborn

• Paul F Williams, North Carolina State University