Many years ago, and this happened soon after our daughter was born, my wife and I finally got a chance to go out on a date. Our daughter, we felt, was now old enough for us to be able to step out of the house for a while.
Lunch and a movie was the plan.
Lunch was very good indeed, both the meal itself, and the rare ol’ pleasure of being able to enjoy each other’s company in diaper-less surroundings. And then we went for the movie.
And that, unfortunately, explains the title of today’s post.
For the movie that we chose that day has the same title as does this post.
And it was an abomination of a movie.
It is difficult to put into words exactly how bad it was, for I don’t remember much of it (which is a blessing, I suppose). Within the first five minutes or so, it became painfully clear that this movie was going to be a complete dud. We could have sat outside in the lobby instead, and it would have been a better use of our time. We could have gone up and down the escalators in the mall that we saw the movie in for three hours, and that would have been a better use of our time. We could, in short, have done absolutely anything else for those three hours, and it would have been a better use of our time.
And yet, in spite of knowing this with the kind of crystal clear certainty that is rarely afforded to us humans, we still sat through the entirety of that – for lack of a better word – movie.
Not our proudest moment, especially because both of us have PhD’s in economics – we clearly fell prey to the sunk cost fallacy.
What is the sunk cost fallacy?
Rather than share the Wikipedia page about the topic, as I would have done until now, I asked our new overlord its opinion on the matter:
We’ve got the chance to come out on a date after such a long time, we figured. Who knows when we’ll get another opportunity like this? We shouldn’t waste it. That’s how our reasoning went.
Failing to realize, of course, that watching that damn thing was the most horrible waste of our time. As I’ve already mentioned, we could have done just about anything else with the time that we had, and we would have been better off. But as ChatGPT3 so smugly told me, our “tendency to justify continued investment in a decision based on the amount of resources already invested” is what caused our downfall.
And that’s the tricky thing about the sunk cost fallacy. Explaining it is easy, and understanding it is easy. Applying it? Ah, that’s the difficult bit. And it happens to the very best of us!
I drove to the store last night only to find on arrival that I had forgotten my wallet. I returned home frustrated and ready to veg out in front of the tv. It occured to me, however, that my earlier trip was a sunk cost. If the trip was worthwhile the first time it must be worthwhile to return (not so much time had passed as to change the utility of the calculation). I still felt frustrated and I didn’t really want to return but I forced myself to behave like a rational utility maximizer. As I headed back, however, I felt better. Reason and emotion cohered once again as the sunk cost became psychologically sunk.
https://marginalrevolution.com/marginalrevolution/2003/12/behaving_like_a.html
Score one for economics. A sunk cost is only sunk if you choose to ignore it and economics helps us to do this. But note to self: have more sympathy for students who find the economic way of thinking to be unnatural. Often, they are right.
(Something I found myself wondering about while I was pasting this blogpost here. Note that the extract above is the entire blogpost! Woud this blogpost have been written at all in the age of Twitter? Were we better off then, or are we better off now? Along which dimensions? But anyway, back to our regular programming.)
But let me go back to the point about explaining and understanding sunk costs being “easy”. Is it, really? What are you optimizing for when you “succumb” to the sunk cost fallacy?
What if you choose to finish a task in spite of knowing that it isn’t “worth it”? Are you necessarily an “irrational” person? What if you choose to finish the task to make a point? What if making the point matters more than succeeding at said task? What if attempting to complete a task is more about signaling to others about the kind of person one is? Would this then still be a fallacy?
Many years ago, Tyler Cowen wrote a blogpost about the sunk cost fallacy (in fact, a response to Alex Tabbarok’s post excerpted above), and had this quote within it:
One might prefer that, if others have made significant sacrifices in attempting to realize some valuable state of affairs S, then their sacrifices not be in vain. That is, one might prefer that these sacrifices causally contribute to the realization of some valuable state of affairs…Interestingly, one sometimes is in a position to determine, by one’s own actions, whether the past efforts of others will have been in vain. This is true, for example, when it is within one’s power to finish some valuable project in whose service others have labored, but which they are now not in a position to complete. Let us say that when one acts so as to prevent the past efforts of others from having been in vain one redeems those efforts.
https://marginalrevolution.com/marginalrevolution/2004/03/when_is_it_rati.html
What does this mean, exactly? Consider this:
Dus is a 2005 Indian Hindi-language action thriller film directed by Anubhav Sinha, based on the lives of seven fictional SIT (Indian Special Investigation) Team officers. It stars Sanjay Dutt, Sunil Shetty, Abhishek Bachchan, Zayed Khan, Shilpa Shetty, Esha Deol, Dia Mirza and Raima Sen.
https://en.wikipedia.org/wiki/Dus
Dus is a tribute to late celebrated director Mukul S. Anand, who had died while filming the incomplete 1997 film of the same title, which starred Dutt and Shetty with Salman Khan. It was a critical and commercial success.
I have not seen Dus, and I don’t know if it was “the realization of some valuable state of affairs”. But if one is able to determine, by one’s own actions, whether the past efforts of others will have been in vain, what then? It might be the right thing to make sure that “their sacrifices not be in vain”. Honoring somebody’s memory – is that a sunk cost fallacy or not?
Maybe it is not so easy, after all, to explain and understand the sunk cost fallacy.
Has it been all a waste of time then, I writing this post and you reading it?
Ah well, in any case, Happy New Year to all of you!
EconForEverybody 