Please give an example of a sunk cost fallacy, either one that you have experienced in...

Please give an example of a sunk cost fallacy, either one that you have experienced in your professional life or that of a business company. Describe the case. Were there other hidden decision-making traps involved? Did groupthink play a role? Which measures could have been taken in order to avoid the trap(s)?

Expert Solution

A company spends $20,000 on training its employees to use a new Enterprise resource planning (ERP) system. After whole work done, the software turns out to be heavily confusing and unreliable. The top level management wants to discontinue the use of that new ERP system. In this case $20,000 spend on training of employees is a sunk cost.

In this case the top level management only listen from someone that new ERP system is good for business development and it saves time and energy of employees. The salesperson of the ERP system tells about its benefits and convinced senior management team to make purchase without analyzing. Yes, groupthink plays an important role in suck cost fallacy, when senior management come to know that every competitor of them is also using this system so, they also decided to use it.

Measures could have been taken are-

1. Before making purchase decision first do lot of research

2. Ask experts of that system before installing

3. First go and use that software by one-self then make decision

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keosha answered 2 months ago

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