Sunk Costs Hiding in Opportunity-Cost Reasoning

Introduce two managers reviewing the same failed project: one says continue, one says abandon. Both insist sunk costs are irrelevant. Pose the driving question.

• Same facts, same accounting identity, opposite recommendation
• Both claim to apply the sunk-cost rule
• Drives the question: where is the double-counting?

Present the manager's calculation and ask the learner to pick which line item contains the hidden sunk cost.

• One forward-looking line silently contains a past outlay
• Commit before seeing the breakdown

An interactive comparison showing the Continue ledger and the Abandon ledger side by side, with toggles to reveal or hide each cost line and its origin (past vs. future).

• Toggle 'Show future-only lines' to isolate what each side actually loses going forward
• Highlight the line that disappears when 'past outlay' is toggled off
• See total cost of each option shrink when sunk portions are stripped out

Explain how an unrecoverable past outlay gets repackaged as a 'future' obligation (e.g., recouping the investment, replacing the asset to its prior state), inflating the apparent opportunity cost of abandoning.

• A past payment is not a future cost just because it appears in next year's forecast
• The forgone alternative is the next-best use of the same resource, not the original purchase
• Replacing or 'recovering' a sunk outlay is double-counting

Show the arithmetic: total 'cost to abandon' = genuine opportunity cost (next-best use) + disguised sunk cost. Demonstrate the gap numerically with a worked example.

• Genuine opportunity cost is the forgone return on the resource used elsewhere
• Disguised sunk cost is the prior outlay smuggled in as 'recovery cost' or 'write-off avoided'
• The difference is exactly the over-counted amount

A second interactive where the learner drags each cost line into 'Future (counts)' or 'Past (sunk, ignore)' bins for a new scenario, and sees the corrected opportunity cost recompute.

• Practice separating past commitments from forward-looking alternatives
• Watch the opportunity cost figure drop to the true value
• Reinforces the visual pattern of the relabel trick

Clarify the boundary: replacing an asset because the project needs it is a legitimate future cost, not a sunk-cost smuggler, so long as it reflects an actual new outlay tied to the forward-looking choice.

• Replacement needed for the new alternative = real future cost
• Replacement needed only to undo a past decision = disguised sunk cost
• The test is whether the cost would exist if the original outlay had never been made

Present a fresh scenario (e.g., switching software platforms after a failed rollout) and ask the learner to identify which line in the 'switch' cost is the smuggled sunk cost.

• Transfer the pattern to a new context
• Confirm the double-counting is recognized without the original case scaffolding

Directly answer the driving question: sunk costs sneak back in when prior outlays are relabeled as future obligations, and the fix is to compute opportunity cost from the resource's next-best use, not from undoing the past.

• Double-counting = past outlay + forgone alternative return, counted together
• Diagnostic test: would this cost exist if the original spend had never happened?
• True opportunity cost is forward-looking and excludes the past