Explain the concept of sunk costs and their relevance in decision making.

Explain the concept of sunk costs and their relevance in decision making.

Sunk costs refer to the costs that have already been incurred and cannot be recovered or changed by any future decision. These costs are irrelevant in decision making because they are already spent and cannot be recovered. Therefore, when making decisions, it is important to focus on the future costs and benefits rather than considering sunk costs. By ignoring sunk costs, decision makers can make more rational and efficient choices based on the potential future outcomes.