Monday, February 17, 2014

The Sunk Cost Fallacy

Do you know what the "Sunk Cost" fallacy is? Do you make smart, rational decisions most of the time? Did you ever decide to finish reading a book or finish watching a movie that starts off 'bad', gets worse, and you knew that was not going to get any better? And your reason for doing so is, “I have already invested time/money in the book/movie so I need to finish it. Well, that is the 'Sunk Cost' fallacy.

Economically speaking the Sunk Cost is the past cost that you have already paid and can not recover.

The text book example of Sunk Cost fallacy is that you have purchased a theater ticket and when the time comes for you to use it you don't want to go to the theater. Your mind, and other people, will tell you that this is wasting the ticket but if you take time to consider this you will see that you and those other people are wrong. The money spent for the ticket is the sunk cost. You can't do anything but use the ticket to go to the theater and you now say that you don't want to go to the theater. I purchased the ticket so I must use it. In fact, if you use the ticket you are creating more waste in that you are wasting your time.

The Sunk Cost fallacy tells us that a decision can only be justified by its immediate true causes and that any arguments that were considered in the past and were dismissed then just do not count now...the old saying is “if you could have seen it coming, why didn't you?”

Rational behavior [buying the ticket and then using it] may be consistent but it does not mean that you can be more rational by simply being more consistent.

Considering the Sunk Cost fallacy is just way of asking “What have you done for me lately?”


No comments:

Post a Comment