Source: p 286, Principles of Economics (7 ed, 2014) by N Gregory Mankiw
[1.] Economists say that a cost is a sunk cost when it has already been committed and cannot be recovered. Because nothing can be done about sunk costs, you should ignore them when making decisions about various aspects of life, including business strategy.
Source: Is the Sunk Cost Fallacy Actually Smart Business? (2013 May 5), based on the research of Sandeep Baliga and Jeffrey Ely. I have not read the paper itself as it appears to need graduate-level Microeconomics and Real Analysis.
[...] [2.] “We call it the ‘theory of the second best,’” he says. “The more you can remember, the better it is, and you don't have to commit this fallacy at all. But if it's a common feature of human beings that they do forget stuff, then the sunk cost fallacy is an optimal response to that forgetfulness. Sunk costs can encode information about decisions you made in the past, and if that's the case you should take them into account, because if you didn't, you'd make even worse decisions.” [...]
I know that Mankiw's book is for first-timers to microeconomics, but 1 appears to oversimplify the subject of Sunk Costs. Is 2 correct? And does 2 refute 1?
I do understand 2's subtlety: 2 means that Sunk Costs should motivate you to try to determine the reasons for the past decision, which may or may NOT justify resuming a past action; 2 does not mean that high Sunk Costs oblige you to resume a past action thoughtlessly and always.