Anchored to Sunk Costs

Here is an exchange that happened after someone posted this question :
Am I wrong or is the entire concept of sunk cost terribly flawed?

ME : Ahem. Is this similar to being pot committed in Texas hold’em? If so I would imagine it varies greatly. A friendly game with friends over who pays for the pizzas vs a million dollar stakes table at a tournament. (and shared the following picture)


To this some helpful gentleman responded and we had this exchange. I do have the best frineds, even the ones.

Wise and Gentle RL : Sunk costs are simply costs that have already been incurred that cannot be recovered. One way to think about it is this – consider you have spent $200 dollars to repair your car, but your car still doesn’t work. You could sell your car for $600 if it worked. You now know for certain that you could repair your car for $500, but otherwise it is useless junk. How much would it be worth to you to repair and sell your car?

ME : thanks. that would be -100$ plus time, well in general right?

Wise and Gentle RL : Yup – but what if you had initially spent $1000 for the failed repair on your car instead of $200. Now how much would it be worth to you to repair your car for $500 and sell it for $600?

ME : ah I see so in this case now the same amount would actually recoup you 100$. Interesting. But with time and stress from initial expenditure one may still just scrap the car. (I really think we should be putting the money symbol after the number :/ but there is a sunk cost in going with it before the numbers)

Wise and Gentle RL : Exactly – that money that you spent initially is gone. It’s not coming back no matter what you do – and shouldn’t affect your decision on what to do next.

I recently heard something poignant about economics, It was from a recent podcast of either Kontra Krugman or the Tom Woods podcast… I know it was either Tom woods or Bob Murphy. Econ is not a philosophy, it doesn’t give you a moral code but is instead a system of rational, of logic. It is well worth your time to invest in getting to know about it. You use it even if you do not know you are ding so.

You cna learn things on social media. It is just a tool after all. Look at how schools are today. Spending time online depending on what you are doing, even if it is just a week can be more educative than a semester, or in some cases an entire 4 year degree at an ‘institution of higher learning.’

Curate your experience on the greatest tool humanity has ever had. Feed your brain. Don’t push this back or ignore it and be the epitome of this excellent joke that was the first comment to the question “Even if it is I have believed in it for far too long to change my mind!”


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