Final answer:
False. Sunk costs refer to past costs that cannot be recovered and should not influence current decision-making. The sunk cost fallacy describes the erroneous behavior of continuing investment based on emotional attachment to past commitments rather than evaluating present and future value.
Step-by-step explanation:
False. In engineering economics, sunk costs do not refer to costs associated with foregone alternatives. Rather, sunk costs are costs that have been incurred in the past and cannot be recovered. The concept of sunk cost fallacy highlights the irrationality of continuing to invest in something solely because of the past resources committed, rather than based on its current and future value. Therefore, when making decisions, it's important to ignore sunk costs and to focus on what will happen in the future, rather than what has already taken place.
Sunk costs can create psychological burdens for individuals and firms alike. It often requires admitting an earlier error in judgment when realizing that the past expenses are not recoverable and should not influence current decision-making. For example, a company may find it difficult to discontinue a poorly performing product because of the substantial amount of money spent on developing and launching it, but the lesson is to make choices without taking those spent resources into account.
The avoidance of the sunk cost fallacy is crucial in ensuring that resources are allocated efficiently and that businesses and individuals do not fall into the trap of throwing good money after bad.