Ignore Sunk Costs (2009) • Hacker News Board

Re: Ignore Sunk Costs (2009)

#41

Post by baddox » Sat, Jan 04, 2020, 9:29 PM UTC

DubiousPusher wrote: post #21

dvt wrote: post #19

Earlier quoted context omitted.

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 havi…

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 li…

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.

Re: Ignore Sunk Costs (2009)

#42

Post by DubiousPusher » Sat, Jan 04, 2020, 9:29 PM UTC

dvt wrote: post #26

DubiousPusher wrote: post #20

Earlier quoted context omitted.

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.

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.

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.

Re: Ignore Sunk Costs (2009)

#43

Post by readhn » Sat, Jan 04, 2020, 9:31 PM UTC

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.

mistake is not in holding strong hand way too long. mistake is in not playing it.

Re: Ignore Sunk Costs (2009)

#44

Post by baddox » Sat, Jan 04, 2020, 9:34 PM UTC

goldcd wrote: post #14

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…

There’s also the much more basic concept of time preference. Regardless of the monetary costs of preparing for and traveling to the concert, the concert experience is going to be more valuable to you if it is set to occur in 5 minutes rather than in, say, 3 months.

It’s perfectly understandable and rational to value your ticket more 5 minutes before the concert starts than 3 months before it starts, just like you’ll pay more for almost anything if you get it now versus if you get it far in the future.

Time preference is a pretty basic Econ 101 concept. It’s why you get charged interest on loans.

Re: Ignore Sunk Costs (2009)

#45

Post by baddox » Sat, Jan 04, 2020, 9:37 PM UTC

GuB-42 wrote: post #37

I believe there is a reason the sunk cost fallacy exists, instinctive behavior patterns come from millions of years of evolution, and I believe that if they were totally wrong, they would have been selected out. For example, imagine you are a predator, chasing some prey, on the way, you see a prey that looks easier to catch, the "no sunk cost" solution is to stop the chase and go after the new target. Then you see a…

I think a simpler way of explaining that is simply to say that many people fail to recognize sunken costs because most costs are not sunken. It’s usually appropriate to consider past costs, and it takes effort and intention to recognize which costs are sunken.

Re: Ignore Sunk Costs (2009)

#46

Post by readhn » Sat, Jan 04, 2020, 9:40 PM UTC

i strongly disagree with the author. you cant ignore sunk costs.

For example, in the stock market the majority of active retail traders (>90%) get wiped out within 3 years. they continue to dump money into the market, ignoring losses (sunk costs), hoping that the next trade will help recover the losses, and then the next trade, the next ... etc. at some point one has to stop "bleeding" and re-evaluate the approach before blowing out trading account completely. this plays out in the stock market every day and will continue for as long as trading exists. one cant ignore sunk costs - we have to learn from it.

Re: Ignore Sunk Costs (2009)

#47

Post by bsder » Sat, Jan 04, 2020, 9:54 PM UTC

kwhitefoot wrote: post #15

Similar to the Concorde fallacy: https://dictionary.cambridge.org/us/dictionary/english/conco... .

While the Concorde may have been uneconomic, the engineer in me weeps at the loss of a little bit of coolness in the world.

Re: Ignore Sunk Costs (2009)

#48

Post by identity0 » Sat, Jan 04, 2020, 9:56 PM UTC

turboturbo wrote: post #35

mikeryan wrote: post #34

Earlier quoted context omitted.

The Springsteen ticket example is a horrible one. It turns out the amount of time you spent getting the tickets is irrelevant. No its not my time is worth something.[1] If I spent 3 hours getting the tickets and I value my time at $150 an hour then the value of the tickets is now $505 and I'm only getting offered $500 Also the value of a ticket "To Me" may be worth more than $55 I spent. It might be worth $1000 in my…

The value of the tickets doesn’t increase with the effort you spent towards them.

It increases with the amount of effort you would spend. If you value your time at $150/hr and you _would_ spend 3 hours looking for them, the tickets are worth $505 to you, even if you spent 15 minutes looking for them. Then, if someone offers to buy them at $500 that’s a bad deal because you value them more.

Re: Ignore Sunk Costs (2009)

#49

Post by DubiousPusher » Sat, Jan 04, 2020, 9:56 PM UTC

nullc wrote: post #36

asperous wrote: post #33

Earlier quoted context omitted.

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 so…

> 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 decisio…

Man I cannot agree at all. I've personally seen some majorly bad decisions made on the backs of those fallacies.

Re: Ignore Sunk Costs (2009)

#50

Post by gregplaysguitar » Sat, Jan 04, 2020, 9:57 PM UTC

dvt wrote: post #28

nullc wrote: post #25

Earlier quoted context omitted.

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…

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.

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