Mr. Chan bought a 900 square foot flat in Whampoa Garden for $12 million three years...
Mr. Chan bought a 900 square foot flat in Whampoa Garden for $12 million three years ago. Because of a downturn in the property market, similar flats are currently selling at $10 million. Mr. Chan has decided to sell his flat but insists on getting a price of $12 million because that is the price he paid for it. What fallacy is Mr. Chan committing, and why is his behavior irrational?
Homework Answers
Mr. Chan is committing the sunk cost fallacy in which a person considers the cost already incurred in making a present decision.
$12 million incurred is a sunk cost as it has already been incurred and cannot be recovered. Therefore, he should not consider this cost in making present sales decision.
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