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The Sunk Cost Principle

Discussion in 'General Discussion' started by DrFrylock, Jan 25, 2011.

  1. DrFrylock

    DrFrylock
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    The White

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    Sunk Costs are those costs (in money, time, effort, whatever) that have already been paid and cannot be recovered through any means. The sunk cost principle is a somewhat counter-intuitive principle that says that your decisions should ignore sunk costs and only consider prospective costs.

    It's counter-intuitive because most people have a psychological investment in sunk costs. If you're three years into a college program that you hate and you're considering whether to drop out or not, most people think "but I've already invested THREE YEARS...I can't stop now!" In reality, you have to forget those three years - you can't get them back.

    Another example would be when you've written a post on the Internet that's really a bad idea. Maybe you are posting about how you found porno pics of a relative, or an embarrassing post about an ex-girlfriend who reads TiB or something. And you get to the end and you're thinking about clicking the submit button, and you're thinking "wait, this is a bad idea." But then, in ignorance of the sunk cost principle, you think "but I just spent all this time crafting the perfect post about this. I can't just throw it away now." So you post it anyway. It's always a bad idea.

    FOCUS: What things have you gotten so invested in that you couldn't back out regardless of the future costs and benefits? How did you rationalize staying invested? How did you get out, or did you?
     
  2. thevoice

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  3. Dcc001

    Dcc001
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    New Bitch On Top

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    One word: pets. Jesus Christ, can animals get expensive. And I didn't spend mad cash on a purebred; I went down to the pound and adopted two puppies for a $25 donation fee and vet costs. That was a mere drop in the bucket. They need vaccinations yearly, they need obedience class so that they can be condition to be polite around everything, they need food daily, they used up at least two hours of my time each day on walks, seven days a week. It goes on and on - both a huge financial and time investment.

    My favourite cost thus far was moving to this city. I had to live in a hotel for 2.5 months until I got possession of my house. There is only ONE hotel in town that will take someone with dogs for an extended time, and that sucker is expensive. Paid through the nose for that one.

    That being said, I have never once regretted it. As cheesy and lame as it sounds, they're the centre of my universe and because of them I've met many great friends and I exercise outdoors even when, as now, it's -40*. Pets rock.
     
  4. E. Tuffmen

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    FOCUS: I've been married for 8 years and have kids. Do these years count as "sunk cost"?
     
  5. dubyu tee eff

    dubyu tee eff
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    Thinks he has a chance with Christina Hendricks...

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    This whole PhD in Economics thing is starting to seem like it. Luckily there is an eject button after the Masters portion is complete so I may end up taking that route. While I enjoy my classes and research, the ridiculousness of academia is already getting to me, and I'm only in my first year.
     
  6. Disgustipated

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    My back yard.

    When I bought my house, the back yard was almost completely untouched. All it had was a shed on a concrete slab and a clothes line. The couple who had built the house had split up just as the house was finished, and the yard never got a look in.

    When I bought it, I had pretty definite plans of finishing it off to add value. Enter a friend of mine, with a good track record in odd jobs and landscaping. He tells me he can do it for a good price if he can take his time and stay at the house (as he lives interstate). He wants to make it a working holiday. I say no problem.

    My house is on a hill, and the back yard has around a four metre drop (over 12 foot). Access is dodgy because of the house placement, necessitating a pass through garage. The drops also requires some extensive retaining wall work.

    So, he gets to work, and it turns out to be tougher going than he expected. A foot down he strikes shale and bedrock. This makes the uprights a problem, taking more time and money. Eventually he finishes the basic build and fill, but it's cost me well over $40k.

    A month or two after he leaves we get massive rain. It turns out he's not such a great retaining wall builder, as the build quality plus fucked up drainage from the neighbouring property and diabolical contouring conspire and leave me with a broken retaining wall. And by broken, I mean completely pulled from its anchors and sitting two and a half foot out diagonally.

    I can't get my mate to come and fix it; he has no money and I'd only be sinking more funds to an already unproven contractor. He's my friend, but enough is enough. I can't leave it the way it is as it's a severe safety issue and no one in the right mind would buy the house. Plus, eventually, the whole lot is going to end up down the bottom of the hill one day.

    So, I engage commercial landscapers who bring in engineers and surveyors. To fix it is an almost total rebuild, quoted at over $70k. It's so bad, three engineers refused to even consider quoting on it. I seriously sat down and thought about whether it would make more sense to level the lot and leave it. Even that would cost me nearly $20k because of the access problem.

    I've decided that I'm going to have to put the cash in, in the hope that I have a better chance of recouping when I sell.
     
  7. Frebis

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    I'm a Bengals season ticket holder. I have been for six or seven years. A comparison of my free time, to the price of the tickets, to the current state of the franchise reveals that it is time to rid myself of the PSLs (a license that gives you the right to purchase season tickets). I posted them on craigslist yesterday at 1/4 what I paid for them. Guess how many responses I got? 0. If I do not renew my season tickets, I forfeit the PSL.

    Something inside of me will make me renew the tickets if I don't sell the PSL.

    I fucking love the team, but the tickets aren't worth the paper they are printed on. Back when I first got the tickets if I did not go to a game, I could sell the tickets for double face value. This year I could not give them away.

    I've invested thousands and thousands of dollars in this stupid fucking team, for what? Absolutely nothing. They suck a dick. And will as long as Mike Brown is running football operations. I'm sure it won't be long before they end ip in LA. Then I can pick a new team to root for without being called a fairweather fan. It will feel so good to finally have them off my shoulders.
     
  8. The Village Idiot

    The Village Idiot
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    Porn Worthy, Bitches

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    Law School. I'm still trying to rationalize this particularly poor decision. I'm out for now, but that's temporary as my one unique skill set is that I have no other skill sets.
     
  9. Disgustipated

    Disgustipated
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    I seriously consider getting my law degree being one of the best things I've ever done. Not being a lawyer: that sucked dead donkey dick. But the general knowledge, approach to problem solving, ability to research and analytical skills have been invaluable to me.

    Either your law degree sucks (can't comment for that) or you're not looking at it the right way. Many law graduates tend to see things straight down the line, so I'd say it's the latter.
     
  10. Degenerate

    Degenerate
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    Jesus.

    We get it, you make really good money as a lawyer. Seems like every third post you put on here is masked with how much cash is in your bank account.
     
  11. M4A1

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    $100K. That's how much money the mistake of buying a house with a woman that wasn't my wife is going to cost me. That is my personal investment. We split up right as the housing market in LA shit the bed(she stayed in the house, I went to Seattle). I am signing over the house to her this week. I will never see a dime of that money. Call it the most expensive lesson in my life.
     
  12. bewildered

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    I hear that a lot since I am in college and people my age are pursuing degrees that will hopefully get them certain jobs. Many people plan to stay in a lucrative career for x years and then retire rich to do what they really want (play guitar, paint, etc). The only problem with that is, you, and probably those you surround yourself with, will be unhappy the entire time and by the time you have the means to quit your career and pursue your passion, you've either forgotten that thing you wanted to do, or you are so addicted to the money and the lifestyle that you choose wealthy unhappiness over your real dreams.
     
  13. Binary

    Binary
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    The ultimate paradox is one random guy who makes good money but is unhappy in his job?

    Do you really think your problems are so complex or unique?

    Focus: I regularly ignore the sunk cost principle when playing poker. I will chase a bad hand or stick around in a pot that I clearly have no business in just because a bunch of my chips are already on the table. Fortunately, the people I usually play with are not great players and as often as I'll look like a fool with a lousy hand and a bunch of money on the table, I'll end up inadvertently calling a bluff and take the hand.


    Several years ago I was working with a team of 10 people to implement a new IT system at work. When I joined the team, they were a year and a half into the project and out about $100k in non-labor costs. During my tenure with the team, I and another guy slowly began to discover that the company whose system we were implementing never actually had a successful, functional install. They had some beta sites and some demos but the IT director who put the project together had not vetted the product or the company properly and had simply been dazzled by their sales pitches.

    It was equally clear that the product was absolute garbage under a pretty interface and that it would never be fully functional. Of course, the powers that be would not hear of this investment going to waste even though it was clear to a few of us that this company was going to be out of business in <2 years and we'd be stuck with a junk product and no support.

    It took an additional 6 months of meetings, arguments, data collection and threats to get management to kill the project.

    Turns out we were single-handedly keeping that company in the black, they folded within months of losing our business.
     
  14. Kraken

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    Interesting discussion about the law degrees. I graduated almost 10 years and did the whole firm thing and felt my soul being sucked from me the first two years. Then I made the best choice of my professional life and went out on my own. I starved for the first 1.5 years and was lucky to have a wife who was actually making money while I could barely pay the mortgage.

    Things turned around at the end of the 1.5 years. Fast forward 7 years later and I love the type of law that I practice and look forward to going to work almost everyday.

    We always have a choice.
     
  15. Harry Coolahan

    Harry Coolahan
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    My roommate bought a motorcycle about a month after I bought mine. But he also bought the cheapest bike he could get on Craigslist, a 1984 Nighthawk 650 for $1,000. It was running but in piss-poor condition and he has probably invested at least another $1K into repairs. Not including spending literally every weekend for the first 2 months at Auto Zone, the mechanic, or in our garage trying to make installations and repairs. It probably amounted to an easy 100 hours over the course of 3 months. Also not including all the times he spent trying to kickstart his bike because the battery stalled out, leaving him stranded in various areas around the city.

    All because he didn't want to look at bikes in the $1800-2000 range that were in impeccable condition. In contrast, I paid $2800 for my bike and I haven't had to make a single repair to it, I paid $80 for a thorough inspection the first weekend after buying it and that's it.

    His bike has been in the garage for the winter but the first thing he's going to do when weather warms up is pay another $250 to have all the rust in his gas tank removed. The worst part is I've explained to him in every way I can the concept of the sunk cost fallacy. His rationale is that making these repairs is going to improve the resale value of his bike, allowing him to sell it in the spring and upgrade to something newer. I've tried explaining to him that a bike that old and busted has a resale cap, and that the money he's putting into it is never going to amount to the money he'll get back from selling it.
     
  16. Stealth

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    Surely there would have to be a "Sunk Cost Principle" in at least 20% of all marriages out there.
     
  17. BL1Y

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    Not a sunk cost for me personally, but I always think of this principle when I hear people say shit like "If we leave Iraq, all our troops will have died for nothing."

    But, to join in with the law degree crowd, I've met so many people who can't comprehend that I wouldn't want to "use my degree." I guess I'm lucky that I got the sunk cost thing pretty quickly. It helped to remember that I have another degree on my resume, and maybe I could try using that one instead.