Skip to main content

The Psychological Side of Sunk Costs


Writing off any so-called sunk cost as immaterial to any present decision is equivalent to writing off a relationship, perhaps a marriage, as soon as it proves to be disadvantageous instead of recalling its history or perhaps imagining its future. In terms of sunk costs, the modern economist may easily dismiss those costs, especially in the modern economy, when expenses are facilitated by work which has become less laborious than in prior generations. 

If, for example, a laborer were to purchase a football ticket with an amount of cash earned from fifty days of hard labor, the economist may expect that laborer to go to relatively greater lengths, perhaps despite the winter storm of the season, than a counterpart who spent a fraction of his daily earnings, or perhaps a friend who benefited from a "free" ticket.  

This is, after all, representative of all of those days of painstaking work, a feature of life which may be long forgotten due to the relative ease with which incomes seem to be systematically generated without as much blood, sweat or tears. 

Much of the same could be said about the progressive abstraction of money such that its roots and the causes of wealth are increasingly misunderstood and markedly misrepresented. 

This may strike an observer as irrational, especially when the apparent risks seem irreconcilable with the perceived potential for rewards, but this may merely be the consequence of a difference between the observer's and actor's respective sensitivities to the prior experiences which enabled the option now afforded to said actor. 

This sensitivity, when forward-looking, often drives scrupulous savings and spending habits, and while these behaviors may strike the observer as irrational when compared with perceived risks, opportunity costs or even the actor's own present mental calculus, the value of prior work may be understated to accommodate a potentially-overstated or largely-unsubstantiated valuation of life. 

This is not to suggest that individuals are prudent to remain committed to those ends afforded them by past expense, but rather to recognize that some of those individuals are influenced by the recollection of the ferocity or duration of that work which enabled the option. 

In some capacity, merely satisfying the terms tacitly accepted upon the time of purchase is a way to pay homage to oneself and the work conducted for this end. 

Therefore, attendance at the game may not merely stand as a source of mere football-related entertainment but may rather become a hybrid between that and the former. 

The actor may then seem better off by foregoing the game to remain safely at home, or by avoiding the painstaking drive, but the perceived regret, stemming from a supposed diminution of the value of said previous work, may beset the perceived value of the former. 

Again, this may seem irrational while it's merely a specific case of expressed valuation on past time and labor relative to alternative actions or endeavors whose values fail to be expressed with as neat a price tag as the other.  

Comments

Popular posts from this blog

America's Civil War: Not "Civil" and Not About Slavery

Virtually the entirety of South and Central America, as well as European powers Britain, Spain and France, peacefully abolished slavery — without war — in the first sixty years of the nineteenth century.  Why, then, did the United States enter into a bloody war that cost over half of the nation’s wealth, at least 800,000 lives and many hundreds of thousands more in casualties?  The answer: the War Between the States was not about slavery.  It was a war of invasion to further empower the central government and to reject state sovereignty, nullification of unconstitutional laws, and the states’ rights to secession.  It was a war that would cripple the South and witness the federal debt skyrocket from $65 million in 1860 to $2.7 billion in 1865, whose annual interest alone would prove twice as expensive as the entire federal budget from 1860. Likewise, it was a war that would witness a five-fold increase in the number of civilians employed by the federal government, as federal gove

Cullen Roche's Not So "Pragmatic Capitalism"

In his riveting new work Pragmatic Capitalism , Cullen Roche, founder of Orcam Financial Group, a San Diego-based financial firm, sets out to correct the mainstream schools of economic thought, focusing on  Keynesians, Monetarists, and Austrians alike. This new macroeconomic perspective claims to reveal What Every Investor Needs to Know About Money and Finance . Indeed, Roche introduces the layman to various elementary principles of economics and financial markets, revealing in early chapters the failed state of the average hedge fund and mutual fund operators -- who are better car salesmen than financial pundits, Roche writes --  who have fallen victim to the group think phenomenon, spawning the nearly perfect positive correlation to the major indexes, and thus, accounting for tax, inflation, and service adjustments, holistically wiping out any value added by their supposed market insight.  Roche also references popular studies, such as the MckInsey Global Institute's report whi

The Evils of Facebook in the War Against Reason

Facebook is one of the greatest frauds whereby thoughtless friends share or tacitly embrace ideas which, in doing so, adds personal, relatable flair to messages being distributed from largely unknown reporters.  In effect, these friends then subject a wider community to the thought that since their friends are supportive of such ideas, then they ought to carry some merit or authenticity.  Facebook commits a great disservice to communication, serving primarily to subject meaningful dialogue to inherently-binary measures of laudability or contemptibility.  Whereas scientific evaluation serves to extract emotion, Facebook serves to embolden the fallacy-ridden supposition that fact follows fanfare, that truth trails trendiness, and that democratic participation (by way of “likes” or “shares”) can reliably support truth or sustainably produce virtue. What's more, Facebook and other social media sites tend also to further the fallacy that the last breath, or more precisely the f