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Sunk Cost
Views: 288 Bob’s new house was damaged in a storm. He spent $20,000 in insurance deductible and repairs not covered by insurance to fix the house. The house was valued at $400,000 before the storm. Since Bob spent $20,000 on repairs, would the market value of the house increase to $420,000? The storm reduced the value of the house significantly and the repairs restored the house to the same condition it was before the storm. The repairs restored the price back to $400,000. From the buyer’s perspective, the house is the same as it was before the storm. so why …
