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Ignore Sunk Costs (2009)

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Re: Ignore Sunk Costs (2009)

#21

Post by DubiousPusher »

dvt wrote: post #19
defertoreptar wrote: post #12

Earlier quoted context omitted.

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 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 like risk.

Re: Ignore Sunk Costs (2009)

#22

Post by redis_mlc »

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…

> 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.

Thanks for articulating that so well.

It's easy to analyze sunk costs when actions can be considered in isolation academically. It's not at all the same situation when things are not so clean.

What if the concert was at CBGB, and it was closing the next day? What if you liked Streisand and it was possibly her last show? What if it was the last tour of KK Downing? Would any amount of money make selling your tickets worthwhile?

KK Downing demon-possessed and fully lit @4:26

https://www.youtube.com/watch?v=J4d5sMg8eCE

Re: Ignore Sunk Costs (2009)

#24

Post by paulpauper »

Seth Godin's success is proof that mediocrity pays if you're early.

>Or say you make a mistake and go to the concert instead of selling (those seats are $500 seats now). 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?

Well then the concert would be cancelled and you would get a refund.

In regard to the sign, if it were accidentally misspelled the person who made it should fix it at no extra cost.

He cannot even give good examples to support his thesis.

Re: Ignore Sunk Costs (2009)

#25

Post by nullc »

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.…

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.

Re: Ignore Sunk Costs (2009)

#26

Post by dvt »

DubiousPusher wrote: post #20
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.

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.

Re: Ignore Sunk Costs (2009)

#27

Post by ghaff »

thinkloop wrote: post #11

> 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 s…

Yeah, I'm not sure I agree with that scenario.

Leave aside any ticket refunds or rescheduling--and assume you got the tickets for free but were offered the $500 from a scalper. If you really don't have any interest in staying I think most people would shrug and think "easy come, easy go" whether or not they theoretically had an option to turn the tickets into cash.

Re: Ignore Sunk Costs (2009)

#28

Post by dvt »

nullc wrote: post #25
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.…

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.

Re: Ignore Sunk Costs (2009)

#29

Post by smarri »

This is how I was taught about sunk costs at business school. Which schools are largely misunderstanding it I wonder? Also, is this really the most important decision making rule? Even so - maybe it isn't so good, or practical, to ignore sunk costs. What if a business partner squandered your investment? Not to worry - just a sunk cost. Spent all those hours looking for the Springsteen tickets - maybe your time was more valuable than that $500 offer.

Re: Ignore Sunk Costs (2009)

#30

Post by mikeryan »

smarri wrote: post #29

This is how I was taught about sunk costs at business school. Which schools are largely misunderstanding it I wonder? Also, is this really the most important decision making rule? Even so - maybe it isn't so good, or practical, to ignore sunk costs. What if a business partner squandered your investment? Not to worry - just a sunk cost. Spent all those hours looking for the Springsteen tickets - maybe your time was mo…

I came in to say that this was one of the tidbits of info I always held onto from business school. The whole point of understanding sunk costs is avoiding the Sunk Cost Fallacy.

Everytime I hear a sports talk radio guy talking about how much an overpaid and underperforming player is still going to play I pull my hair out.

https://www.behavioraleconomics.com/resources/mini-encyclope...

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