should she leave? The money she spent is a sunk cost, and unless the theater manager is sympathetic, Selena

will not get a refund. However, staying in the movie still means paying an opportunity cost in time. Her choice

is whether to spend the next 90 minutes suffering through a cinematic disaster or to do

something—anything—else. The lesson of sunk costs is to forget about the money and time that is irretrievably

gone and instead to focus on the marginal costs and benefits of current and future options.

For people and firms alike, dealing with sunk costs can be frustrating. It often means admitting an earlier error

in judgment. Many firms, for example, find it hard to give up on a new product that is doing poorly because

they spent so much money in creating and launching the product. However, the lesson of sunk costs is to

ignore them and make decisions based on what will happen in the future.

From a Model with Two Goods to One of Many Goods
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