17 ms·

The "argument from waste," as economists call it, makes sense from a business and investment standpoint, but I'm a staunch believer that in every-day decision m

• defertoreptar 7y ago
  I'm not sure I'm following. In the example, there's a sunk cost of dressing up and setting aside time. Then, other than sunk cost, there's the probable future cost of reduced cooperation as well as cost in rapport and morale. I don't see those things as sunk cost because the decision to go or not go can influence those costs.
  • dvt 7y ago
    The idea is this: the "rational" thing would be to sell the tickets for $500 a pop. However, even if there's just a probability of cooperation and social rapport suffering†, it wouldn't be irrational to honor the sunk cost and still attend the concert. In the paper, the "Camping Rainstorm" example is similar in spirit. Instead of the protagonist suffering what the author calls a "diachronic misfortune," maybe in having no plans for the rest of the night, maybe in suffering a cooperation loss vis-a-vis the spouse, etc., they honor the sunken cost. † I'd probably argue it's guaranteed.
    • DubiousPusher 7y ago
      I think you and the blog post author are making the same mistake. You're just not putting a dollar value on these social costs. If the blog author valued their partner's feeling they would enumerate upsetting them as a cost and it wouldn't be so clear that you're earning $500. But rather you're earning $500 less the cost to your personal relationship. This is a similar mistake to failing to price other intangibles like risk.
      • baddox 7y ago
        It’s an odd mistake to make, since it implicitly recognizes that someone may value the experience of seeing the concert more than $500, but fails to recognize that someone may value their close social relationships more than $500.
    • baddox 7y ago
      It’s not rational to choose receiving $500 and having your wife and friends be upset at you, unless you value the $500 more than having your wife and friends be on good terms with you. That’s a tautology, of course, but apparently it needs to be said.
      • hoopluh 7y ago
        This is the most correct answer I’ve seen in this thread. Not all costs are dollar prices.
• DubiousPusher 7y ago
  It seems to me like one simply should incorporate social costs into the calculation. If your wife was looking forward to the concert and doesn't give one whit about modern economic theories like sunk cost, her disappoinment at not following through with attending the concert tonight is not a sunk cost, that's a future cost which you should weigh.
  • dvt 7y ago
    I think you're conflating what the paper author calls "binding" and "betting" -- "binding-type" decisions (like the one in the concert example) seem to be candidates for honoring sunken costs. Betting, on the other hand, does not.
    • DubiousPusher 7y ago
      No. I understand exactly what the author means. The paper is quite simple and clear. I just think it's a meaningless distinction. Rather than try to create a two tiered decision making process where some decisions should include sunk costs and others shouldn't, you should have a single tiered system that includes social costs. You don't need to think in sunk cost terms to value plausible deniability. You should view losing credibility with your superiors and peers as a current cost that runs into the future. If for example you suddenly realize your thesis paper is junk and are faced with decision to push forward or start anew it's not sunk cost to consider that your academic superiors might see this as flailing about and that you should count that as a cost of changing direction. That's just a social cost and not a time or materials cost.
      • lonelappde 7y ago
        That's being victim of your peers falling for the sunk cost fallacy
        • DubiousPusher 7y ago
          No. It's realizing your peers can induce a cost to you in the future whether they are acting from a rational PoV or not and incorporating that cost to your calculation.
• nullc 7y ago
  You don't need to invoke social narratives and consistent behaviors to justify honoring sunk costs. Sunk costs are often a predictor of a developed position. For example, you spend 20 years in advancing in field and then worry that you might not like it that much anymore. If you avoid leaving the field purely because of the sunk time, you are honoring a sunk cost. If you avoid leaving the field because your 20 years have made you good enough at it that your pay is good and your job stability is assured... and meanwhile you would have a hard time getting hired in a new preferred field or keeping a job there because your expected pay would be unaligned with your experience there (see also: ageism)... then that is just playing the hand you are currently holding. Usually your current position isn't completely clear. You don't know precisely to what degree 20 years experience have made you better suited to your past field than another. Under the reasonable assumption that your past costs weren't entirely wasted and aren't perfectly fungible to different moves it is reasonable to use your past costs as a predictor of your current position. 20 year experience in a field is probably worth something, and probably worth a lot more than 5 years.
  • dvt 7y ago
    This is a good point and it was going to make it in my original post! I was going to say that the $1,000,000 price (as opposed to $100,000) tag on a piece of land will tend to be indicative of the value of the piece of land, assuming you weren't in a drunken stupor when you paid a million bucks for it. In other words, most decisions in life aren't bets made in a vacuum.
    • gregplaysguitar 7y ago
      The inference though is that the million dollar land _was_ worth that much because it was next to a (now-condemned) shopping centre, and the cheaper land was next to nothing; the new subdivision means the values have changed dramatically. Extreme example, but the point is the price paid is irrelevant if circumstances render it so
    • DubiousPusher 7y ago
      It is indicative of the value of the land but says very little about whether you should or in what way you should choose to develop either plot. The surrounding economy, zoning and geography will have far more to say about that.
• NewEntryHN 7y ago
  > but not honoring them might hinder current (or future) cooperation. Then you're not honoring sunk cost. You're honoring current or future costs, just like you should do.
• Spooky23 7y ago
  Of course the world is complex. This stuff makes sense unless it doesn’t. That $10,000 piece of land may require capital budget to utilize that you don’t have, for example. I ran into the concert example when it was announced a couple of years ago that David Wright would take the field for the N.Y. Mets for the last time. My $12 tickets were suddenly worth $300 or more. Rationally, it would make sense to pocket a few thousand bucks. But the experience had a certain value, and I wouldn’t be able to get my kids and nieces and nephews together, in NY, etc for a year or more. So we had an amazing time and missed an economic coup.
  • anoother 7y ago
    The way I see it, you didn't miss the coup. You got a $300 experience for $12. I'm monetary terms, you got the exact same outcome as if you'd have sold the tickets.
• robotresearcher 7y ago
  Pissing off your spouse is a pertinent new cost of bailing from the concert, not a sunk cost. The ticket price is sunk, because you paid it in the past and can not change it.
  • jcriddle4 7y ago
    If the ticket is fully refundable then it is also not a sunk cost. The land example also has potentially the same issue if the land can be sold for the purchase price. If the land can be sold but at a 20% discount then the sunk cost is only the 20%.
• rumanator 7y ago
  > In Seth's concert example, this is particularly relevant: your spouse might be a huge Springsteen fan, for instance. Your example misses the whole point of OP's demonstration of why sunk costs make no sense. OP's demonstration focuses on a single metric (cash), a single focused investment (time spent searching for the tickets) and a single critical change that exposes how the sunken cost fallacy negatively impacts decision-making (a random person offers you 10x the cash for your tickets). The example illustrates that the amount of resources invested in the project in the past should not be a factor in the decision-making process because it leads to poor, irrational decisions. That's the core message of the sunken cost fallacy. Your example fails to reproduce the problem because it switches the focus to an entirely different metric (utility) and frames the problem in a way that the new metric is actually negatively impacted by the change, thus the rationale decision is to not sell. That says nothing about the sunken cost fallacy because poor decisions are not alternatives to good decisions.
• pdonis 7y ago
  > These are all technically "sunken costs" No, they're not, they're additional factors to be considered in determining the value of the tickets to you, as compared to the value of the $500 you could get for them. The article ignores such factors, presumably for simplicity of exposition, but that doesn't mean they're not relevant. The correct rule is still to ignore sunk costs, because those are in the past; but the correct rule by no means says you should ignore relevant future impacts of your choice (like your spouse being upset because you sold the concert tickets) just because they aren't monetary.