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Sunk Cost Fallacy Decision-Making Model in Business Projects

Student: Anna Kozina

Supervisor: Alexander Porshnev

Faculty: Faculty of Management

Educational Programme: Management (Master)

Year of Graduation: 2019

Modern economic relations are undergoing serious transformations, both fundamental (globalization of markets, intensifying competition, development of management models) and situational (making managerial decisions under conditions of uncertainty, heightened risks). Managers of organizations make various decisions because of their direct responsibilities, most of which have certain financial implications. Among them, strategic decisions about investing in business projects are the most complex and specific, since strategic investment decisions influence the future direction of an organization in a fundamental way. The economic reality is such that there are situations when the management of organizations are led by inefficient unprofitable projects and incur high costs due to the fear of recognizing losses. However, there are examples when executives of companies quite quickly respond to the problems encountered by the inefficiency of their own projects in the market and complete their activities, despite the resources already invested in the projects. In order to determine how to deal with projects that do not pay off the resources invested, it is important to find and investigate factors that will help determine the subsequent actions of managers - to continue unprofitable projects or stop investing resources in inefficient projects and close them. The purpose of this work is to identify the features of making management decisions about the need to fix losses. The scientific novelty of this master's thesis consists in developing an algorithm for making managerial decisions in a situation of fixing losses and specific factors determining the fixation of sunk costs. The master thesis consists of an introduction, two chapters, conclusion, list of references and applications.

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