When the Economic professor explain about this sunk cost, he gives an example about 2 girls (I forget their name, lets call them Anna and Marie). So Anna has bought a Ticket to Adele Concert for $50, but Marie got the ticket to Adele Concert for free. But then there are news saying that Adele suddenly fell sick and affect the quality of her sound badly. But regardless, Adele's management decided that the show must go on. So with the risk of 2 hours of listening to Adele's sick voice, what decision will Anna and Marie took...?
Based on rationalities, more people will answer that Anna will still go to the concert regardless because she already paid something and if she doesn't attend the concert, she'll feel like she's wasting her $50. Meanwhile for Marie, since she got the ticket for free, she will most likely easily to decide that she won't go to the 2 hours of ear torture.
Now lets understand the concept of Sunk Cost. It is the cost that already spent that is actually irrecoverable, so you shouldn't take that cost into consideration when you should take a decision. It's like a ship that already sunk, there's nothing you can do, so just let it go and move on.
In our life, have you ever felt that you've invested into something and once the investment start to hurt you, then you feel so hard to let it go. Let say, you have a boy/girlfriend. Every time you go, you might be paying for the movie, the food, and else. But then suddenly you found your boyfriend is cheating on you. But then based on everything you've spent, it's hard for you to let go, and you keep fooling yourself and actually hope that he can change. So you just keep holding on a bad "investment" in your life.
Today after lunch, I bought a small bag of Pretzel for $2.8. I think it actually quite expensive because with that price, I can get two Snicker bars. But because I was so curious about Pretzel, I decided to buy the Pretzel. I sometimes hear about this Pretzel thing in a movie. It's like a snack that people ate. So I'm like really is curious about the taste and what Pretzel really look like. I bought the Hot Buffalo Wings flavor.
So basically it's like a very hard biscuit in pieces. When I start tasting the Pretzel. Oh my dear GOD it taste weird.... hahaha.... it's like so sour and a bit spicy on the other end of my tongue. I keep asking to myself, "What the heck is this flavor? it should be Hot Buffalo Wings, but why so sour..."
Well maybe it's just me, I don't know maybe you could be liked it. I think it's just a matter of taste. But in my point of view, it doesn't taste good.
15 minutes I spent on deciding what should I do with this Pretzel. Should I jut throw it away and lost $2.8 or should I just keep eating it with the risk of I'm traumatized by its flavor. hahahaa... Doesn't this feel like Anna and Marie conflict on Adele's Concert?
So just because Anna has spent $50 on Adele's concert ticket doesn't mean by attending the Adele's concert,she'll get the concert worth of $50. Because Adele's not on her best performance. Rather than wasting time to attending Adele's concert, she'd better be doing something that will benefit her more rather than wasting 2 hours listening to Adele's cracking voice.
And then in my hand, there's half a bag of pretzel. What should I do?
Should I really take the $2.8 as sunk cost?
Compare this to your life. Maybe when we talk about the theory of sunk cost, it would be easier for us to say, "Just ignore it and keep moving forward." But when I'm experiencing it, it's not that easy, really. For God's Sake it's just $2.8 but I feel the hardest time to just throw that away. Maybe that's why so many people keep hanging on a bad investment when they actually know that it is a bad investment.
There's always something that called "Hope" that make us harder to let the sunk cost just go away. We always somehow had hope that the bad investment will turn around someday and our cost will be recoverable. This is where we were trap in a Bad Investment dilemma. I believe other people must have spent more than just$2.8.
But at some point, we really need to know where we really should abandon our hope and start to learn the fact that this investment and the cost we've spent really is unrecoverable. Rather than we keep spending money on that item just to keep alive, it is better for us just to really move on.
"Yeah, maybe tomorrow I'll throw away the pretzel...." I say.
oh oh oh.... watch out for another trap from procrastination. We just keep on stalling to let go the sunk cost and in the end, it gets even harder to let go.
This sunk cost theory is not only useful in terms of cost and benefit analysis, but also in real life. We actually have to use the Cost and Benefit Analysis in everything we do in this life. If we decided to do something, we also have to considered other possibilities of what we can do. Then we start to calculate the cost and benefit for that activities. After that, we can choose which activities that we'll carry on.
"Think like an economist!" that's the tips.
It's actually a bit emotionless, because we sometimes has to put aside all the feeling we have towards certain things, and try to take a decision as objective as it could be.
So now you've learn the theory. Do you still have something you still can't let go in your life even though that thing's already hurting you so much? Think about this Sunk Cost Theory. You may not be able to recover the cost, So if you really need to take decision towards that, you need to exclude the cost you've spent because it's already sunk. There's nothing you can do about it. It's better to lost a bit in order to gain bigger opportunity.
Let your life be free of the heavy things in life that you carry all the time.
Yeah, today I'll throw away the Pretzel, hahahaha.....
Now it's your turn....
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