The ThinkTank Chronicles.

This is my journey from the deeply mysterious to the outrageously silly and mundace happenings of my life. the lows and highs, the ups and downs. And maybe a Simple Harmonic Motion to an exponential curve. Mathematical, Scientific, Theistic, Philosophical, Logical,Social, every conceivable idea.

Thursday, November 24, 2005

Love, Sunk Costs & Popcorn.

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?
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!
|| KoPoS, 4:46:00 PM

4 Comments:

Nice post. But mostly you dont happen to be watching a movie alone. And to walk away halfway through a movie would require all your friends to equally dislike the movie... which again rarely happens - individual tastes being so varied.
my conclusion - An individual should keep his immediate environment in mind while making any decision. Maybe that could be made into a law :P
Blogger Sreejith, at 7:59 PM  
@sreejith
thanks. Couldnt agree more! But this was a specific case ya know ;)
Blogger KoPoS, at 8:47 AM  
Good post. It reminded me of 'My feelings on Catting' as i choose to put it. I have written cat close to 4 times now. Everytime i feel I am actually closer to the real thing (Those IIM dreams). Practically speaking I should continue doing what I am doing pretty well nad give up catting, but I feel now that I have tried so many times, there really is no point giving up right now. I should have in the beginning not now. Who knows, Perseverance sometimes might as well pay!! But yes there is a certain risk associated with it, but then what really is Life without these challenges we throw at ourselves.
Blogger BetterHalf, at 11:06 AM  
@better half:
thanks :). completely agree with perseverance part, but as i said, the decision you take now should be completely independent of the idea that you've invested 4 years into it already.

thanks for the visit btw. power, peace and love to you!
Blogger KoPoS, at 11:45 AM  

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