
Ignore Sunk Costs (2009) - vsrev
https://seths.blog/2009/05/ignore-sunk-costs/
======
dvt
The "argument from waste," as economists call it, makes sense from a business
and investment standpoint, but I'm a staunch believer that in every-day
decision making (barring Vegas trips) it isn't usually a _fallacy_ [1]. The
paper cited is abstract (and borrows from Nozick, who also wrote a criticism
of the sunken cost fallacy in the early 90s). But the conclusion is:

> Sometimes it is reasonable to honor sunk costs. Why? It’s reasonable to want
> to maintain plausible deniability about having suffered diachronic
> misfortune. Sometimes, honoring sunk costs is the only way to do this. It’s
> reasonable to want to maintain plausible deniability because having this
> desire is instrumental in successful cooperation, and successful cooperation
> is essential to our success as social creatures.

In Seth's concert example, this is particularly relevant: your spouse might be
a huge Springsteen fan, for instance. She might have dressed up, and made a
whole night of the event. Your friends might have _also_ bought tickets and
they are waiting for you. These are all technically "sunken costs" \-- but not
honoring them might hinder current (or future) cooperation.

[1]
[http://www.mit.edu/~rdoody/SunkCostFallacyIsNotaFallacy.pdf](http://www.mit.edu/~rdoody/SunkCostFallacyIsNotaFallacy.pdf)

~~~
nullc
You don't need to invoke social narratives and consistent behaviors to justify
honoring sunk costs.

Sunk costs are often a predictor of a developed position.

For example, you spend 20 years in advancing in field and then worry that you
might not like it that much anymore.

If you avoid leaving the field purely because of the sunk time, you are
honoring a sunk cost.

If you avoid leaving the field because your 20 years have made you good enough
at it that your pay is good and your job stability is assured... and meanwhile
you would have a hard time getting hired in a new preferred field or keeping a
job there because your expected pay would be unaligned with your experience
there (see also: ageism)... then that is just playing the hand you are
currently holding.

Usually your current position isn't completely clear. You don't know precisely
to what degree 20 years experience have made you better suited to your past
field than another.

Under the reasonable assumption that your past costs weren't entirely wasted
and aren't perfectly fungible to different moves it is reasonable to use your
past costs as a predictor of your current position. 20 year experience in a
field is probably worth something, and probably worth a lot more than 5 years.

~~~
asperous
For sunk costs, you are supposed to consider your all options including the
sunk cost project.

For your example your options might look like:

* Stick with industry, 0 year lead time, no cost, possible sadness, low risk

* Slight change, 2 year lead time, $20,000, moderate happiness, medium risk

* Vast change, 10 year lead time, $100,000, unknown happiness, high risk

The fallacy would be giving the first option some sort of financial value
because you spend time and money on it in the past. You are just supposed to
look at your options looking forward only.

~~~
nullc
> You are just supposed to look at your options looking forward only.

In most realistic scenarios your estimations of the payoff matrix has a
significant uncertainty. It isn't just that there is risk, but your estimation
of the risk is uncertain as well (as well as your estimation of your
estimation, and so on).

When reasoning under uncertainty we can usually achieve significant benefits
from regularizing the decision.

"Do what everyone else is doing", "Keep doing what I was already doing", and
"Do what is most consistent with my past investments" are time tested highly
effective regularizers. When we are trying to rationalize taking actions that
defy billions of years of evolved heuristics for reasoning under uncertainty
we call the first 'bandwagon fallacy', the second 'status quo bias', and the
third 'sunk cost fallacy'.

There is often a fine line between rational decision making and
rationalization. Awareness of the ways that people sometimes make errors in
their decisions can be useful, but one should take care to avoid using a
little bit of knowledge to come up with specious justifications for poor
choices.

Much of the time I see the word 'fallacy' used it sure seems to be sophistry.
When a reasoned position is better you can just state why its better outright
and the justification will stand up on its own merit without any invocation of
a named fallacy.

~~~
DubiousPusher
Man I cannot agree at all. I've personally seen some majorly bad decisions
made on the backs of those fallacies.

~~~
nullc
I've seen some people get killed after leaving their homes. Better stay inside
all the time.

------
goldcd
Of course you should ignore "sunk costs" \- the problem is deciding what's a
"sunk cost" and what's "an investment" with an associated probability on its
return.

To riff on the example say you were prepared to pay $300, you paid $55 and
you're being offered $500 on the door. Yes. You probably would sell the
tickets, for $445 profit. However maybe you flew into the city for $200 and
booked a hotel for $100. You've now sunk $55+$200+$100 and if you sell your
ticket, that's all list. You walk away with $145 profit - but you'd originally
been prepared to see Bruce for twice that.

Maybe if you wait 30 mins the tout will put his price up? Or maybe somebody
else will sell, he can deliver on his commitment to a third party, and resale
price will collapse.

Now if the price collapses, you can still see Bruce. If they price offered
remains/rises you can re-consider selling.

Now maybe you do take the money and exit the market.... Except article
mentions Bruce is playing the next day. You could sink $100 into another night
in the hotel and $50 to change your flight (which roughly halves your return).
This would let you see if you can get another cheap ticket on stub-hub, and
the next day sell them to touts, go to the show, stand outside trying to tout
them yourself. When you spend that $150 then of-course the cost has been sunk
and you should ignore it from then on. Problem is deciding whether or not to
make the sunk-cost/investment.

~~~
mikeryan
The Springsteen ticket example is a horrible one.

 _It turns out the amount of time you spent getting the tickets is
irrelevant._

No its not my time is worth something.[1] If I spent 3 hours getting the
tickets and I value my time at $150 an hour then the value of the tickets is
now $505 and I'm only getting offered $500

Also the value of a ticket "To Me" may be worth more than $55 I spent. It
might be worth $1000 in my mind for a chance to see Bruce regardless of what I
spent.

[1] One of my great life hacks as I've gotten older is valuing my
(particularly free) time at some amount - usually $150 per hour. Have a task I
can pay someone to do and get the time back on a weekend? - $150 x Time of
Task is the amount I'm willing to pay.

~~~
turboturbo
The value of the tickets doesn’t increase with the effort you spent towards
them.

~~~
identity0
It increases with the amount of effort you would spend. If you value your time
at $150/hr and you _would_ spend 3 hours looking for them, the tickets are
worth $505 to you, even if you spent 15 minutes looking for them. Then, if
someone offers to buy them at $500 that’s a bad deal because you value them
more.

------
franciscop
I see code as a liability, and this is probably a very big part of it. So I
regularly throw away large swats of code and whole projects when they are no
longer useful and future prospects seem dire. I learned not to get attached to
code.

But I've also seen other devs getting very attached to their code. So projects
don't get closed, and instead they just fade in the background in a folder
somewhere to avoid hurting anyone and keep the morale of the team up (which is
very important of course). But this speaks a lot about technical debt and
combinatory complexity of projects and companies, and I rarely see social
discussed around technical debt.

I still don't know a good solution here. For my personal projects, I see
things improving more and more and me being able to achieve results faster, so
at least I'm very happy on that side.

Note: I'm not talking about my employer, just about companies in general.

------
lubujackson
Hold'em poker is specifically good at teaching this viscerally. Nothing lets
you feel the mistake of valuing sunk costs than holding onto a once-strong
starting hand way too long.

~~~
readhn
mistake is not in holding strong hand way too long. mistake is in not playing
it.

~~~
chepaslaaa
you get called and the flop is shit, what do you do?

~~~
readhn
going against another strong hand and loosing is one thing - slow rolling
strong hand and being outplayed by weaker hand is another (and totally
deserved IHMO).

------
paulpauper
Seth Godin's success is proof that mediocrity pays if you're early.

>Or say you make a mistake and go to the concert instead of selling (those
seats are $500 seats now). But Bruce is sick and Manfred Mann is substituting
for him. You don’t like him so much. But you paid $500 for the seats! Should
you stay?

Well then the concert would be cancelled and you would get a refund.

In regard to the sign, if it were accidentally misspelled the person who made
it should fix it at no extra cost.

He cannot even give good examples to support his thesis.

~~~
stblack
According to this post, dated August 8, 2019 and titled "Streaks", Seth has
been blogging for 11-years straight without missing a day.

His posts appear hours before I awake every day, despite us being in the same
time zone.

So your comment, "Seth Godin's success is proof that mediocrity pays if you're
early", should be retracted.

Edit: I forgot to include the link:
[https://seths.blog/2019/08/streaks/](https://seths.blog/2019/08/streaks/)

~~~
egypturnash
"His posts appear hours before I awake every day, despite us being in the same
time zone."

Real blog software* lets you schedule posts. It's eminently possible that he
writes these in batches and has his blog post them at midnight local time. He
seems to be using Wordpress, which has multiple plugins out there to make this
even easier to do.

Regularly keeping this up for eleven years is nothing to sneeze at but I am
pretty sure that the likelyhood of him getting up at 3AM every morning and
writing a post is nil.

* yes this means your static site generator is not Real Blog Software

------
GuB-42
I believe there is a reason the sunk cost fallacy exists, instinctive behavior
patterns come from millions of years of evolution, and I believe that if they
were totally wrong, they would have been selected out.

For example, imagine you are a predator, chasing some prey, on the way, you
see a prey that looks easier to catch, the "no sunk cost" solution is to stop
the chase and go after the new target. Then you see a new one, then a new one,
then a new one, etc... In the end, you will probably be to busy changing
targets to catch anything. That behavior is commonly exploited, just look at
kids playing tag, taunting "it" by putting oneself in relative danger is a
common strategy, and the counter is to ignore the taunt and focus on a target,
even if it is not the easiest one, i.e. honoring sunk costs.

And the $500 proposal for the $55 ticket doesn't make it a $500 ticket. When
you buy a ticket, you pay the price of the ticket, plus everything that goes
with it: free time, getting there, uncertainty and risk, and all the emotional
investment that is harder to quantify... Imagine you value that at $500, so
including the $55 ticket, that's a $555 experience, the reason you wouldn't
have bought a $500 ticket is that it would have made it a $1000+ experience.

And here you see why refusing the $500 proposal is not necessarily a mistake.
The guy is offering you $500 for a $555 experience.

So yeah, good to know about the sunk costs fallacy, but I believe it is also
important to understand why that "fallacy" exists, and how to properly
evaluate costs, even those without a clear price tag attached to it.

~~~
wrkronmiller
Alternatively, the sunk cost fallacy is a heuristic that compensates for the
fact that calculating marginal value (especially in high-pressure settings) is
hard.

Evolution has also selected for more powerful brains that allow us to develop
more sophisticated frameworks (e.g. law, science) for reasoning than pure
emotion.

------
egypturnash
"Spend $250 on dinner and go buy better tickets for tomorrow night’s show."

Which you would probably have to spend another four hours looking for, _if_
you could find any at all; Bruce is probably in town for a couple of days at
most and tomorrow's show is most likely sold out. I guess your future time
looking for those tickets is worth nothing too, despite the second paragraph
urging you to only consider what may happen in the future when making a
decision.

"Or say you make a mistake and go to the concert instead of selling (those
seats are $500 seats now). But Bruce is sick and Manfred Mann is substituting
for him. You don’t like him so much. But you paid $500 for the seats! Should
you stay?"

Has this man ever gone to a concert in his entire life? The show's gonna be
_cancelled_ and you will be getting a refund.

------
thinkloop
> The most important decision-making rule you learn in business school is
> still largely misunderstood.

I wonder what he thinks is misunderstood. My experience is that people get it
if taught it, and don't if they weren't.

> But Bruce is sick and Manfred Mann is substituting for him. You don’t like
> him so much. But you paid $500 for the seats! Should you stay?

I get the message but this illustrates the trickiness of sunk costs, they're
not always so perfectly sunk. In this case most people would probably
correctly stay - they're there, dressed, ready to have a good time, a lot of
the costs are only partially sunk with lots of residual value.

~~~
ghaff
Yeah, I'm not sure I agree with that scenario.

Leave aside any ticket refunds or rescheduling--and assume you got the tickets
for free but were offered the $500 from a scalper. If you really don't have
any interest in staying I think most people would shrug and think "easy come,
easy go" whether or not they theoretically had an option to turn the tickets
into cash.

------
ken
> Spend $250 on dinner and go buy better tickets for tomorrow night’s show.

Does he not understand how this works? Most touring musicians only play one
night per city, e.g., [1]. It would cost me a lot more than $250 to follow
Bruce from Seattle to NYC for his next show.

(He played every night On Broadway for a while but that was the exception.)

[1]:
[https://brucespringsteen.net/shows/2016](https://brucespringsteen.net/shows/2016)

~~~
harikb
That one is the most idiotic advice I have seen. He said “seats” so he was
clearly taking someone there - a friend or girl friend? I can only imagine
driving back after selling the ticket would probably meant the dinner was
alone.

------
punnerud
Fun fact: In Norway it is not legal to sell tickets on the “black market” for
more than what you paid for them.

------
duxup
In business I wonder how much reinvestment / continued investment is because
someone doesn't understand sunk costs.....or they just don't want a mistake to
be highly visible / rock the boat? So they just continue on.

I worked at a company where they outsourced some work. It became clear that
the outsourcing was both more expensive than domestic work....and the domestic
folks were using up time fixing outsourced work.

The outsourcing was the VPs first big initiative as a VP.

There was lots of talk about just moving on and not worrying about sunk costs,
but they carrried on with the outsourcing...I don't think it was because he
didn't understand sunk costs.

------
smarri
This is how I was taught about sunk costs at business school. Which schools
are largely misunderstanding it I wonder? Also, is this really the most
important decision making rule? Even so - maybe it isn't so good, or
practical, to ignore sunk costs. What if a business partner squandered your
investment? Not to worry - just a sunk cost. Spent all those hours looking for
the Springsteen tickets - maybe your time was more valuable than that $500
offer.

~~~
mikeryan
I came in to say that this was one of the tidbits of info I always held onto
from business school. The whole point of understanding sunk costs is avoiding
the Sunk Cost Fallacy.

Everytime I hear a sports talk radio guy talking about how much an overpaid
and underperforming player is still going to play I pull my hair out.

[https://www.behavioraleconomics.com/resources/mini-
encyclope...](https://www.behavioraleconomics.com/resources/mini-encyclopedia-
of-be/sunk-cost-fallacy/)

------
iamtheworstdev
I keep a list of things I wish all people were taught in their education. From
the business side the list is: sunk cost, opportunity cost, the iron triangle,
and game theory. I try to preach them to everyone because they explain most
business decisions. [https://www.iamtheworst.dev/2019-06-26-business-
terms](https://www.iamtheworst.dev/2019-06-26-business-terms)

------
torstenvl
> _It turns out the amount of time you spent getting the tickets is
> irrelevant. If you wouldn’t be willing to PAY $500 for these tickets (and
> you weren’t, or you would have) then you should be willing to sell them for
> $500._

This example has nothing to do with sunk costs and everything to do with WTP
vs. WTA. Some people -- like the author, apparently -- think they are the
same. Those people are wrong.

Ask yourself - gun to your head, right now, how much money would you offer to
pay the man threatening you right now for him to go away? And what is the
minimum you would accept from him, if offered, to _let_ him blow your brains
out? Chances are, the amount you would be willing to _accept_ for X is much
_much_ higher than the amount you would be willing to _pay_ for ~X.

Or, from a different approach, if your willingness to pay to go to the event
and your willingness to accept to not go to an event were identical, then
going or not-going would have to be a wash. That's obviously not true, or you
wouldn't have put so much effort into going.

~~~
nine_k
The amount you are willing to pay is limited by what's available to you.

The amount you agree to accept (and likely pass down to your inheritors) is
basically unlimited.

------
manaskarekar
Don't know if this was linked, but the relevant podcast episode if anyone's
interested [https://www.akimbo.link/blog/s-2-e-13-ignore-sunk-
costs](https://www.akimbo.link/blog/s-2-e-13-ignore-sunk-costs)

------
jagiammona
Nick Szabo comes to a similar conclusion:
[http://unenumerated.blogspot.com/2012/08/proxy-measures-
sunk...](http://unenumerated.blogspot.com/2012/08/proxy-measures-sunk-costs-
and.html)

------
FartyMcFarter
The problem here is that sunk costs affect emotions, and humans are emotional
beings. It's not all pure rationality.

It's all well and good to try and convince yourself that you made a rational
decision against an emotional fallacy, but that doesn't always work.

------
kwhitefoot
Similar to the Concorde fallacy:
[https://dictionary.cambridge.org/us/dictionary/english/conco...](https://dictionary.cambridge.org/us/dictionary/english/concorde-
fallacy).

~~~
bsder
While the Concorde may have been uneconomic, the engineer in me weeps at the
loss of a little bit of coolness in the world.

~~~
kwhitefoot
> the engineer in me weeps at the loss of a little bit of coolness

Me too!

------
BooneJS
Work sunk costs: I can drop it, no problem.

Personal sink costs: I can’t do it. I know I should ignore it, but I cannot.

------
sombremesa
This is an interesting perspective to look at Bezos' "It's always day one".

------
zelly
What you call sunk cost I call "equity"\--whether that be tangible capital or
human capital.

If you never believed in it, then you should drop it by all means. But if you
take the sunk cost fallacy to heart, you will give up whenever the going gets
tough, which statistically means you will give up everything you ever start.

------
therockspush
Probably do better reading these all in one place than trying to cobble them
together from random blogs from 2009.

This one is the Irrational escalation or Escalation of commitment/Sunk Cost
Fallacy.

[https://en.wikipedia.org/wiki/List_of_cognitive_biases](https://en.wikipedia.org/wiki/List_of_cognitive_biases)

~~~
happytoexplain
I'm not sure it's fair to imply that the wikipedia article for a topic is
equivalent in value to a blog post about that topic.

~~~
Finnucane
True, the blog post probably has less value.

------
dehrmann
Well-meaning parents saying "eat what's on your plate, kids are starving in
Japan" really reinforce valuing sunk costs. They also ignore that there's a
global obesity epidemic.

------
readhn
i strongly disagree with the author. you cant ignore sunk costs.

For example, in the stock market the majority of active retail traders (>90%)
get wiped out within 3 years. they continue to dump money into the market,
ignoring losses (sunk costs), hoping that the next trade will help recover the
losses, and then the next trade, the next ... etc. at some point one has to
stop "bleeding" and re-evaluate the approach before blowing out trading
account completely. this plays out in the stock market every day and will
continue for as long as trading exists. one cant ignore sunk costs - we have
to learn from it.

~~~
vkat
The decade long bull market has been really good to a lot of active retail
traders.

~~~
readhn
in the long run >95% of active retail traders loose money - bull market or
not.

