Would you fund the next step?
An unrecoverable past cost is common to both choices. A forward-looking comparison asks whether the next expenditure improves the outcome relative to stopping now.
Inside this model
Stopping gives a lifetime net result of −sunk. Continuing has expected lifetime result p × revenue − remaining cost − sunk. The difference is p × revenue − remaining cost, independent of sunk expense.
Out in the world
A practical use
A team considering another development milestone should compare its future cost with its future benefit. A large historical budget alone does not justify continuing.
A useful lens. Not a universal law.
- Risk neutrality, zero salvage value and no alternative project are assumed. Reputation, contractual obligations and information value can matter in an actual decision.
Associated thinkers
Further reading
Explore the original research or the teaching reference behind this experiment.
Richard Thaler — Research on sunk costs and self-control ↗