Sunk cost

    Mark Cuban is a bit of a dude and explains Sunk Cost on his blog. Anyone who owns their own basket ball team must have done something right... Anyways Sunk Costs are costs which have been incurred and can't be recovered. For example, the laptop I am typing this on cost me $4,000. By the time I get around to selling it, I might get $200 for it if I'm lucky. Therefore, the value of the laptop now is whatever I could get for it if I sold it now, not what I paid.

    The people who don't understand this are the ones selling old machines for more than a new machine costs because they once paid a lot of money for it.

    I've always used the term "depreciation" to refer to this. Depreciation is the reason that I've kinda gone off buying hardware and cars. I'm just bored with paying a lot of money for something which is intrinsically worthless fairly soon afterwards. I still buy those things, but my purchasing choices are now based on complex concepts like "do I really need that?".

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posted at: 18:14 | path: /diary | permanent link to this entry