4 ms·

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.

by 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.
  - dvt 7y ago
    This is true. However, suppose that all you knew about two plots of land was that one was bought for $1m and one was bought for $100k. Then, someone asks you which one you should develop. Buying land isn't like betting on black. Land has a history, markets are (more or less) efficient, and buyers are usually rational. The sunken cost fallacy suggests the answer is a coin-toss, but in the real world, the correct answer would (usually) be the expensive plot.
    - dannypgh 7y ago
      I think this comes down to correlation versus causation. The fact that someone (perhaps yourself) valued a property highly recently is correlated with that property having a high present value. But it does not cause it. It is possible the million dollar purchase was a mistake, or that something has changed and it's now worth far less. Valuing a property highly may cause you to have paid a lot of money for it, and that might be a reason to assess the current value highly. But that's very, very different from valuing a properly highly because you paid a lot of money for it.
asperous 7y ago
For sunk costs, you are supposed to consider your all options including the sunk cost project. For your example your options might look like: * Stick with industry, 0 year lead time, no cost, possible sadness, low risk * Slight change, 2 year lead time, $20,000, moderate happiness, medium risk * Vast change, 10 year lead time, $100,000, unknown happiness, high risk The fallacy would be giving the first option some sort of financial value because you spend time and money on it in the past. You are just supposed to look at your options looking forward only.
- nullc 7y ago
  > You are just supposed to look at your options looking forward only. In most realistic scenarios your estimations of the payoff matrix has a significant uncertainty. It isn't just that there is risk, but your estimation of the risk is uncertain as well (as well as your estimation of your estimation, and so on). When reasoning under uncertainty we can usually achieve significant benefits from regularizing the decision. "Do what everyone else is doing", "Keep doing what I was already doing", and "Do what is most consistent with my past investments" are time tested highly effective regularizers. When we are trying to rationalize taking actions that defy billions of years of evolved heuristics for reasoning under uncertainty we call the first 'bandwagon fallacy', the second 'status quo bias', and the third 'sunk cost fallacy'. There is often a fine line between rational decision making and rationalization. Awareness of the ways that people sometimes make errors in their decisions can be useful, but one should take care to avoid using a little bit of knowledge to come up with specious justifications for poor choices. Much of the time I see the word 'fallacy' used it sure seems to be sophistry. When a reasoned position is better you can just state why its better outright and the justification will stand up on its own merit without any invocation of a named fallacy.
  - DubiousPusher 7y ago
    Man I cannot agree at all. I've personally seen some majorly bad decisions made on the backs of those fallacies.
    - 7y ago
NewEntryHN 7y ago
In this case you're merely using history to make a relevant choice about the future. You're not honoring the sunk cost because of the investment, you're just using the lessons your learnt while making this investment.
- fogetti 7y ago
  You are basically just playing with the words, but you also seem to contradict yourself: > you're just using the lessons your learnt while making this investment That's exactly what honoring sunk costs mean. Making the investment means the cost factor. And using the lessons your learnt means honoring.

by nullc 7y ago

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.
- dvt 7y ago
  This is true. However, suppose that all you knew about two plots of land was that one was bought for $1m and one was bought for $100k. Then, someone asks you which one you should develop. Buying land isn't like betting on black. Land has a history, markets are (more or less) efficient, and buyers are usually rational. The sunken cost fallacy suggests the answer is a coin-toss, but in the real world, the correct answer would (usually) be the expensive plot.
  - dannypgh 7y ago
    I think this comes down to correlation versus causation. The fact that someone (perhaps yourself) valued a property highly recently is correlated with that property having a high present value. But it does not cause it. It is possible the million dollar purchase was a mistake, or that something has changed and it's now worth far less. Valuing a property highly may cause you to have paid a lot of money for it, and that might be a reason to assess the current value highly. But that's very, very different from valuing a properly highly because you paid a lot of money for it.

asperous 7y ago

For sunk costs, you are supposed to consider your all options including the sunk cost project. For your example your options might look like: * Stick with industry, 0 year lead time, no cost, possible sadness, low risk * Slight change, 2 year lead time, $20,000, moderate happiness, medium risk * Vast change, 10 year lead time, $100,000, unknown happiness, high risk The fallacy would be giving the first option some sort of financial value because you spend time and money on it in the past. You are just supposed to look at your options looking forward only.

nullc 7y ago
> You are just supposed to look at your options looking forward only. In most realistic scenarios your estimations of the payoff matrix has a significant uncertainty. It isn't just that there is risk, but your estimation of the risk is uncertain as well (as well as your estimation of your estimation, and so on). When reasoning under uncertainty we can usually achieve significant benefits from regularizing the decision. "Do what everyone else is doing", "Keep doing what I was already doing", and "Do what is most consistent with my past investments" are time tested highly effective regularizers. When we are trying to rationalize taking actions that defy billions of years of evolved heuristics for reasoning under uncertainty we call the first 'bandwagon fallacy', the second 'status quo bias', and the third 'sunk cost fallacy'. There is often a fine line between rational decision making and rationalization. Awareness of the ways that people sometimes make errors in their decisions can be useful, but one should take care to avoid using a little bit of knowledge to come up with specious justifications for poor choices. Much of the time I see the word 'fallacy' used it sure seems to be sophistry. When a reasoned position is better you can just state why its better outright and the justification will stand up on its own merit without any invocation of a named fallacy.
- DubiousPusher 7y ago
  Man I cannot agree at all. I've personally seen some majorly bad decisions made on the backs of those fallacies.
  - 7y ago

NewEntryHN 7y ago

In this case you're merely using history to make a relevant choice about the future. You're not honoring the sunk cost because of the investment, you're just using the lessons your learnt while making this investment.

fogetti 7y ago
You are basically just playing with the words, but you also seem to contradict yourself: > you're just using the lessons your learnt while making this investment That's exactly what honoring sunk costs mean. Making the investment means the cost factor. And using the lessons your learnt means honoring.