Investors Must Ignore Sunk Costs

Jan 2005 //
Behavioral Finance
Optimism/Pessimism
Investing

Logical decision-makers typically ignore sunk costs—that is, they are said to think and make decisions “at the margin.”  However, as behavioral finance researchers have shown us, logical reasoning can be anything but common among both consumers and investors.  This is unfortunate, because if there’s one error in reasoning that trips up many investors, it’s the inability to ignore sunk costs.  If, for example, you find yourself thinking about the price you paid for a stock more than thinking about its future outlook, then you should read John’s latest commentary, Spilled Milk ...  John’s article is clear, easy to read and ‘spot on’ a most important and relevant topic.