Cost [ from Latin constare, to be fixed, cost]
How many times have you sat through a bad movie cursing, hissing under the breath, grinding your teeth, expressing your anguish over the choice of yours, but never get up from the seat only because you have already paid for it! If you belong to the majority class of people who just don’t walk away from the movie, then economics already has christened it; its called Sunk Cost Fallacy.
That’s wonderful isnt it? I mean whole of my film watching life I have been a victim to some bad ones, some really bad ones, where I paid 40/- and sat through it, further torturing myself thinking that paying for the ticket was the point of no return. However, it was plain dumb of me in retrospect, that rarely I walk out of the theatre and then again had to buy a Tiger Balm on the way home. But wham! The answer is just staring at me in the face!
But what might be the reasons for just not walking out?
- We already have made a semi-public commitment (with friends, etc) to sit in a theatre and watch the movie to the end.
- We have save our face by not making it publicly known that we made a really bad bad choice. And that shows on our decision-making skills!
- Try to paisa-vasool for every pie we paid by either trying to make catcalls to that coochi-cooing couple in the corner seat or try guffaw loudly to a very average done-to-death joke.
- Just endure the torture and just use this to cry foul at every instance it is reminisced among the friends
- To show-off as a been there, done that?
In economics and in business decision-making, sunk costs are costs that have already been incurred and which cannot be recovered to any significant degree. Economists argue that, if you are rational, you will not take sunk costs into account when making decisions.
The best choice as economists seem to say is : if you don’t like the movie and anyways if there is no way you could recover your money, you could do as well is to just do is to not to go to the movie. Anyways, you arent getting your money back, why would you want to waste your time & energy too? That’s called loss-aversion.
A more real-life situation for you. Just imagine you’ve just spent your 3 years of college trying to patao a girl/boy and she/he never responded. So what do you do next? The usual emotional attachment/instinct convinces you that,
Since you’ve already invested 3 years there, why not try one more year
But what does the conventional logic say? Leave it and move on. And what does economics say? It considers the three years as a Sunk Cost, and so would ask you to favorably forget them, right? No, its not so simple; It asks you to
Take your decision based exclusively on now only; without taking into account the three lost years!
Man! Economics does make a lot of sense!