JAMS Employment Matters - Winter 2017

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The Sunk Cost Fallacy: Why Workers Stay with Bad Jobs, Employers Keep Poorly Performing Employees and More Discovery May Backfire -

In economics, a sunk cost is any cost that has already been paid and cannot be recovered. The sunk cost fallacy is a mistake in reasoning in which the sunk costs of an activity are considered when deciding whether to continue the activity. This is sometimes referred to as “throwing good money after bad,” because the money and time spent have already been lost and will not be recovered, no matter what you do.

The sunk cost fallacy makes it more likely that a person or an organization will continue with an activity in which they have already invested money, time and/or effort. The greater the size of the sunk investment, the more people tend to invest further, even when the return on that added investment appears not to be worthwhile.

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