Research Of The Sunk Cost Effects On Firm's Investment Decision

In the theoryof neoclassical economics, sunk cost is the irrelative cost. And it shouldnotbeconsideredintotheinvestmentdecision.Butintherealisticeconomiclife,sunkcost is inevitable. Most company treat sunk cost as a part of the investment. Alargeamountofsunkcostwouldleadthecompanytomakeafaultdecision.In this article,firstly,I discussed the background and the meaning of the research.Secondly, I addressed the theory of sunk cost, sunk cost effect, sunk cost fallacy, thereason of why sunk cost arising, sunk cost adverse effect, dynamic sunk cost,technologydevelopment and so on. Thirdly, Idiscussed how sunk cost effect affectedthe market entering of the firm. Through the theory and example models, I made theconclusion that sunk cost can defer the market entering of the firm. And then find outmethods to deal with thesunk cost effect on firm's market entering.Then, Idiscussedthe sunk cost effect on the investment decision of the firm. And it has been provedthat sunk cost really had negative effect on the investment decision. At last, throughthe analyzing of the relationship of sunk cost effect, technology advancement andeconomic growth, I have made the conclusion that because the existing of sunk cost,ifcompanygivesupagoodinvestmentopportunityorfailsinthemarket entering,thespeed of technology advancement would be slow down, and the economic growthwouldbenegativelyaffected.