Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Ignore Sunk Costs (2009)

seths.blog

Post reply on HN
Print view View original

11–20 of 101 posts

Re: Ignore Sunk Costs (2009)

#11

Post by thinkloop »

> The most important decision-making rule you learn in business school is still largely misunderstood.

I wonder what he thinks is misunderstood. My experience is that people get it if taught it, and don't if they weren't.

> But Bruce is sick and Manfred Mann is substituting for him. You don’t like him so much. But you paid $500 for the seats! Should you stay?

I get the message but this illustrates the trickiness of sunk costs, they're not always so perfectly sunk. In this case most people would probably correctly stay - they're there, dressed, ready to have a good time, a lot of the costs are only partially sunk with lots of residual value.

Re: Ignore Sunk Costs (2009)

#12

Post by defertoreptar »

dvt wrote: post #9

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 making (barring Vegas trips) it isn't usually a fallacy [1]. The paper cited is abstract (and borrows from Nozick, who also wrote a criticism of the sunken cost fallacy in the early 90s). But the conclusion is: > Sometimes it is reasonable to honor sunk costs.…

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.

Re: Ignore Sunk Costs (2009)

#13

Post by friedman23 »

lubujackson wrote: post #5

Hold'em poker is specifically good at teaching this viscerally. Nothing lets you feel the mistake of valuing sunk costs than holding onto a once-strong starting hand way too long.

Yes, rather than making decisions due to past waste you need to make decisions that maximize expected value.

Re: Ignore Sunk Costs (2009)

#14

Post by goldcd »

Of course you should ignore "sunk costs" - the problem is deciding what's a "sunk cost" and what's "an investment" with an associated probability on its return.

To riff on the example say you were prepared to pay $300, you paid $55 and you're being offered $500 on the door. Yes. You probably would sell the tickets, for $445 profit. However maybe you flew into the city for $200 and booked a hotel for $100. You've now sunk $55+$200+$100 and if you sell your ticket, that's all list. You walk away with $145 profit - but you'd originally been prepared to see Bruce for twice that.

Maybe if you wait 30 mins the tout will put his price up? Or maybe somebody else will sell, he can deliver on his commitment to a third party, and resale price will collapse.

Now if the price collapses, you can still see Bruce. If they price offered remains/rises you can re-consider selling.

Now maybe you do take the money and exit the market.... Except article mentions Bruce is playing the next day. You could sink $100 into another night in the hotel and $50 to change your flight (which roughly halves your return). This would let you see if you can get another cheap ticket on stub-hub, and the next day sell them to touts, go to the show, stand outside trying to tout them yourself. When you spend that $150 then of-course the cost has been sunk and you should ignore it from then on. Problem is deciding whether or not to make the sunk-cost/investment.

Re: Ignore Sunk Costs (2009)

#16

Post by friedman23 »

svnpenn wrote: post #8
therockspush wrote: post #2

Probably do better reading these all in one place than trying to cobble them together from random blogs from 2009. This one is the Irrational escalation or Escalation of commitment/Sunk Cost Fallacy. https://en.wikipedia.org/wiki/List_of_cognitive_biases

Seth's blog is arguably one of the most popular blogs of all time, so it's not a "random blog". The fact that you haven't heard of it says more about you than the blog.

This comment is strange, what does him not knowing about this blog say about him?

Re: Ignore Sunk Costs (2009)

#17

Post by franciscop »

I see code as a liability, and this is probably a very big part of it. So I regularly throw away large swats of code and whole projects when they are no longer useful and future prospects seem dire. I learned not to get attached to code.

But I've also seen other devs getting very attached to their code. So projects don't get closed, and instead they just fade in the background in a folder somewhere to avoid hurting anyone and keep the morale of the team up (which is very important of course). But this speaks a lot about technical debt and combinatory complexity of projects and companies, and I rarely see social discussed around technical debt.

I still don't know a good solution here. For my personal projects, I see things improving more and more and me being able to achieve results faster, so at least I'm very happy on that side.

Note: I'm not talking about my employer, just about companies in general.

Re: Ignore Sunk Costs (2009)

#18

Post by californical »

svnpenn wrote: post #8
therockspush wrote: post #2

Probably do better reading these all in one place than trying to cobble them together from random blogs from 2009. This one is the Irrational escalation or Escalation of commitment/Sunk Cost Fallacy. https://en.wikipedia.org/wiki/List_of_cognitive_biases

Seth's blog is arguably one of the most popular blogs of all time, so it's not a "random blog". The fact that you haven't heard of it says more about you than the blog.

I didn't know much about Seth's blog before, but that doesn't matter as long as I remember it for the future!

Re: Ignore Sunk Costs (2009)

#19

Post by dvt »

defertoreptar wrote: post #12
dvt wrote: post #9

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 making (barring Vegas trips) it isn't usually a fallacy [1]. The paper cited is abstract (and borrows from Nozick, who also wrote a criticism of the sunken cost fallacy in the early 90s). But the conclusion is: > Sometimes it is reasonable to honor sunk costs.…

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.

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.

Re: Ignore Sunk Costs (2009)

#20

Post by DubiousPusher »

dvt wrote: post #9

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 making (barring Vegas trips) it isn't usually a fallacy [1]. The paper cited is abstract (and borrows from Nozick, who also wrote a criticism of the sunken cost fallacy in the early 90s). But the conclusion is: > Sometimes it is reasonable to honor sunk costs.…

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.

Post reply on HN