Economics

Question 1

Framing Effect

Answer 1

The outcome is the same, regardless of how the information was framed. saving 200 people from a sinking ship of 600 is equivalent to letting 400 people drown. The former framing type is positive and the latter is negative. 

Question 2

Bygones Principle

Answer 2

According to classical economics and standard microeconomic theory, only prospective (future) costs are relevant to a rational decision. At any moment in time, the best thing to do depends only on current alternatives. The only things that matter are the future consequences. Any costs incurred prior to making the decision have already been incurred no matter what decision is made. People should not let sunk costs influence their decisions, sunk costs are irrelevant to rational decisions 

Question 3

Sunk Cost Fallacy

Answer 3

People believing that investments (i.e. sunk, costs) justify further expenditures. Such behavior that may be described as “throwing good money after bad“, while refusing to succumb to what may be described as “cutting one’s losses“. 

Question 4

Sunk Cost

Answer 4

Also known as retrospective cost, a cost that has already been incurred, and cannot be recovered. The sunk cost is a sum paid in the past that is no longer relevant to the decisions about the future.