Comments on: How to Understand and Overcome the Sunk Cost Fallacy http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/ Thu, 18 Mar 2010 22:58:55 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: GM Woes « The Big Think http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-47567 GM Woes « The Big Think Tue, 09 Jun 2009 15:54:46 +0000 http://financefreelancelife.com/?p=1362#comment-47567 [...] US government will continue to dump billions of taxpayer dollars into revivifying GM (the “sunk cost” fallacy) only to ultimately pull the [...] [...] US government will continue to dump billions of taxpayer dollars into revivifying GM (the “sunk cost” fallacy) only to ultimately pull the [...]

]]> By: Don’t Fall For the Convention Center “Liquidation Sale” Scam | One Caveman's Financial Journey http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-45547 Don’t Fall For the Convention Center “Liquidation Sale” Scam | One Caveman's Financial Journey Thu, 14 May 2009 17:00:27 +0000 http://financefreelancelife.com/?p=1362#comment-45547 [...] And that’s exactly what they intended for me to think.   I was suffering from the sunk cost fallacy:  I had already paid in and, in my mind, that money would be wasted if I left [...] [...] And that’s exactly what they intended for me to think.   I was suffering from the sunk cost fallacy:  I had already paid in and, in my mind, that money would be wasted if I left [...]

]]> By: Father Sez » Archive » Links – The National Monument of Malaysia Edition http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-43669 Father Sez » Archive » Links – The National Monument of Malaysia Edition Sat, 18 Apr 2009 00:34:13 +0000 http://financefreelancelife.com/?p=1362#comment-43669 [...] Micah wrote about the sunk cost fallacy. Sometimes our basic instincts make us throw more good money after bad. Her examples are those at [...] [...] Micah wrote about the sunk cost fallacy. Sometimes our basic instincts make us throw more good money after bad. Her examples are those at [...]

]]> By: fathersez http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-43559 fathersez Thu, 16 Apr 2009 04:41:39 +0000 http://financefreelancelife.com/?p=1362#comment-43559 The same logic when applied to bigger ticket items is even more painfull. Like a Timeshare and a club membership. Hardly used and yet we had to pay yearly and monthly fees. The best was to cut. The monetary gain was no more charges / fees. The loss was the pain of the foolishness in getting them in the first place. <abbr><em>fathersez’s last blog post: <a href="http://www.fathersez.com/a-part-of-whatever-you-earneth-the-taxman-taketh/" rel="nofollow">A part of whatever you earneth, the taxman taketh</a></abbr></em> The same logic when applied to bigger ticket items is even more painfull.

Like a Timeshare and a club membership.

Hardly used and yet we had to pay yearly and monthly fees. The best was to cut. The monetary gain was no more charges / fees. The loss was the pain of the foolishness in getting them in the first place.

fathersez’s last blog post: A part of whatever you earneth, the taxman taketh

]]> By: mrsmicah http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-42319 mrsmicah Wed, 01 Apr 2009 10:57:07 +0000 http://financefreelancelife.com/?p=1362#comment-42319 @Scott, I think you make a good point. If you're trying to get rid of something, you should look at its value. BUT, that said I don't think that the baseball tickets are worth $120 unless you can find someone who'll pay that for them. Because if you don't want them and nobody is offering $120, then $20 might be your best deal to come out ahead. After the game, they won't be worth anything. The problem with sunk cost fallacy is that, among other things, you'll be thinking that they're worth $120 when that could be true but it isn't necessarily so. @Scott, I think you make a good point. If you’re trying to get rid of something, you should look at its value.

BUT, that said I don’t think that the baseball tickets are worth $120 unless you can find someone who’ll pay that for them. Because if you don’t want them and nobody is offering $120, then $20 might be your best deal to come out ahead. After the game, they won’t be worth anything.

The problem with sunk cost fallacy is that, among other things, you’ll be thinking that they’re worth $120 when that could be true but it isn’t necessarily so.

]]> By: Scott http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-42309 Scott Wed, 01 Apr 2009 05:31:50 +0000 http://financefreelancelife.com/?p=1362#comment-42309 I'm not sure I completely agree that you should never take the original cost of something into account when making decisions relating to that item. All items have a current value - a perceived value to the owner. Whether you paid for them, or got them for free, it has a value that can usually be expressed in dollars. Free basketball tickets? Those are still $120 tickets. That you're holding in your hand. That is worth $120 to you. It is as if someone put 6 $20 in your hand. If someone offers you $20 for those tickets, you laugh and accuse the guy of thinking you're crazy. Did you win a car at a raffle? Same deal, you're not letting someone buy it on the spot for $100. Doesn't matter if you already have a car and don't need another. The car has a value to you even if its free. So maybe you should ignore what you paid for it, just like stocks that have already gone down, but you shouldn't ignore its current value. And that's why people will drive in a snowstorm to see a basketball game when they got the tickets for free. I’m not sure I completely agree that you should never take the original cost of something into account when making decisions relating to that item.

All items have a current value – a perceived value to the owner. Whether you paid for them, or got them for free, it has a value that can usually be expressed in dollars.

Free basketball tickets? Those are still $120 tickets. That you’re holding in your hand. That is worth $120 to you. It is as if someone put 6 $20 in your hand. If someone offers you $20 for those tickets, you laugh and accuse the guy of thinking you’re crazy.

Did you win a car at a raffle? Same deal, you’re not letting someone buy it on the spot for $100. Doesn’t matter if you already have a car and don’t need another. The car has a value to you even if its free.

So maybe you should ignore what you paid for it, just like stocks that have already gone down, but you shouldn’t ignore its current value. And that’s why people will drive in a snowstorm to see a basketball game when they got the tickets for free.

]]> By: Diane http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-42287 Diane Tue, 31 Mar 2009 19:29:40 +0000 http://financefreelancelife.com/?p=1362#comment-42287 This is a painful lesson. The feeling of having bought something that doesn't work out or continues to cost more than it is worth is hard to deal with. Sometimes is just best to cut your losses & move on. If something makes me feel bad every time I see it and I'm not using the item I will just get rid of it. If you're lucky you can sell it and make a few dollars back, but if not it's better to donate it and move on. I refuse to keep things that make me feel bad! This does make me think very carefully before making a purchase. I am very cautious about spending money until I'm sure about what I want now, and I do make far less mistakes. The downside is the difficulty of making a decision... which can drive other people nuts. But if I'm spending the money I'll wait until I'm comfortable with the decision, however long that takes. Sometimes this means I just give up without buying and item, so I probably didn't need it anyway! This is a painful lesson. The feeling of having bought something that doesn’t work out or continues to cost more than it is worth is hard to deal with.

Sometimes is just best to cut your losses & move on. If something makes me feel bad every time I see it and I’m not using the item I will just get rid of it. If you’re lucky you can sell it and make a few dollars back, but if not it’s better to donate it and move on.

I refuse to keep things that make me feel bad!

This does make me think very carefully before making a purchase. I am very cautious about spending money until I’m sure about what I want now, and I do make far less mistakes.

The downside is the difficulty of making a decision… which can drive other people nuts. But if I’m spending the money I’ll wait until I’m comfortable with the decision, however long that takes.

Sometimes this means I just give up without buying and item, so I probably didn’t need it anyway!

]]> By: Ken http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-42284 Ken Tue, 31 Mar 2009 18:25:25 +0000 http://financefreelancelife.com/?p=1362#comment-42284 As I am disappointed about current investments that are far from what I wanted at this place in time, I choose not to withdraw it all and put it in a CD. I do have the benefit of time before I reach retirement. Sometimes you have to see the bigger picture. At the same time if an expense is not justified or desired anymore I think it's OK to pull the plug on it. As I am disappointed about current investments that are far from what I wanted at this place in time, I choose not to withdraw it all and put it in a CD. I do have the benefit of time before I reach retirement. Sometimes you have to see the bigger picture. At the same time if an expense is not justified or desired anymore I think it’s OK to pull the plug on it.

]]> By: Small Steps to Health http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-42276 Small Steps to Health Tue, 31 Mar 2009 14:33:39 +0000 http://financefreelancelife.com/?p=1362#comment-42276 It is also just like the dieting mentality. People hate going on a dieting and rarely does it work without yo-yoing, and yet people keep doing it. I think it is all about educating people that just because you are in a habit to "sink" time or money into something does not mean that you always have to do it. You always have the option to stop dieting or to stop taking tennis lessons. If a path is wrong for you, throwing more money at it rarely makes it right. -asithi It is also just like the dieting mentality. People hate going on a dieting and rarely does it work without yo-yoing, and yet people keep doing it. I think it is all about educating people that just because you are in a habit to “sink” time or money into something does not mean that you always have to do it. You always have the option to stop dieting or to stop taking tennis lessons. If a path is wrong for you, throwing more money at it rarely makes it right.

-asithi

]]> By: the weakonomist http://financefreelancelife.com/2009/03/31/how-to-understand-and-overcome-the-sunk-cost-fallacy/#comment-42265 the weakonomist Tue, 31 Mar 2009 11:24:24 +0000 http://financefreelancelife.com/?p=1362#comment-42265 There are many things around me that are the result of the sunk cost fallacy. The first thing that comes to mind are a bunch of work clothes I've rarely worn because they don't fit or I don't like them. Even our government has a problem with this. AIG is the world's largest sunk cost fallacy. There are many things around me that are the result of the sunk cost fallacy. The first thing that comes to mind are a bunch of work clothes I’ve rarely worn because they don’t fit or I don’t like them.

Even our government has a problem with this. AIG is the world’s largest sunk cost fallacy.

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