For students of economics and the curious non-economist layman, I previously explained the concept of “sunk cost.” Here is another example, from what I do. Suppose I have worked a few hours on an EconLog post. From my first reflections and draft to the final post ready for publication, through some complementary research, a few editing passes, and the choice of a featured image, I might have spent four or five hours over a couple of days, a high cost since I could have done something else productive or directly enjoyable during that time. Time is short and its opportunity cost high.
Suppose I now reckon that most of my readers will likely find my newly-minted post at best banal. They will not even feel challenged to learn more. They may conclude that they are unlikely to benefit from reading me anymore, which represents a reputation cost for me. In short, I now think that clicking “Publish” will, from now on, carry a net marginal cost for me. It would be irrational to go ahead “because of all the time I spent on it.” Wasted time is a sunk cost that will not be erased by incurring further costs. Past time is gone forever. It won’t be “reimbursed” to me.
I think and hope that I usually don’t succumb to the sunk-cost fallacy. I sometimes delete, as I just did, a post ready to publish.
READER COMMENTS
vince
Nov 12 2023 at 1:38pm
Sometimes I disagree with your posts, but I always appreciate your effort and challenges.
Pierre Lemieux
Nov 12 2023 at 1:55pm
Thanks, Vince. Let me add that, of course, this post was not a complaint about my readers, but a reflection about my sunk-cost adventures (and a reminder of what sunk costs are).
steve
Nov 12 2023 at 6:01pm
Agree with Vince. Your posts make me think and believe it or not have had me change my mind once or twice.
Steve
Pierre Lemieux
Nov 12 2023 at 9:39pm
Thanks, Steve. I often find food for thought in my commenters’ critiques.
Nick Ronalds
Nov 12 2023 at 3:40pm
And you got a post out of your deleted one after all!
Pierre Lemieux
Nov 12 2023 at 9:01pm
Nick: You’re right. That’s part of the fun of being a writer. You can shoot him in the leg and he will think, “At least I can write about it!” But it will not give him his leg back. If I had not worked on my deleted post, I could have worked on another post, and a commenter on that one might have given me an idea for another post topic (as it does happen), which I would then have written instead of the post above.
Or I could have gone hunting.
john hare
Nov 12 2023 at 5:21pm
When I was blogging in another field several years back, the responses were varied from zero to intense discussion. However, the target was to move that industry forward in hardware and at best I may have influenced some developments. I seldom post there as I feel that I have said what I have had in mind and don’t like blogging just to get words out. I post once or twice a year now. Those hundreds of posts are behind me or sunk and chasing those ideas doesn’t seem productive.
Daniel Kian Mc Kiernan
Nov 12 2023 at 5:45pm
Indeed, though I believe that nearly every writer (myself included) sometimes posts or publishes something not worth reading, if the first piece that I read from some author does not seem to have profitted me, I will almost never read a second piece. No one has time to read everything available, no do we even have time to sample the work of each author, let alone to sample it repeatedly.
I write my own ‘blog mostly to suit myself; but, even then, I sometimes conclude that an entry on which I spent many hours will not be worth inclusion.
Pierre Lemieux
Nov 12 2023 at 9:17pm
Daniel is too modest to give the address of his blog. You will find it at oeconomist.com. I have often read very interesting posts there–when I didn’t waste my time writing posts to delete them.
Craig
Nov 12 2023 at 7:30pm
There are many way the sunk cost fallacy can harm people, but I would also suggest that merely being acquainted with the concept will not automatically immunize yourself from getting harmed by it either. I’m no exception, I readily admit it and I try to be mindful of it. I think cars are a prime example of where people can run afoul of it. Recently I just sold my 19 year old Chrysler for $1,000 after being told it would cost $1800 to fix the shocks. Of course four months prior I had fixed the started and then after that I paid $315 to fix the quarter panel window. Car repairs have a way of luring people in.
Hindsight being 20/20 I would’ve called it before spending money on the starter. I will say though I did have fun with the car, I think I actually got the single best Chrysler made that year! 19 years for a Chrysler?
Pierre Lemieux
Nov 12 2023 at 8:50pm
Craig: Nobody knows the future. Prediction errors are made. And nobody ever says, “let me do a sunk cost that I will regret.”
Thomas L Hutcheson
Nov 13 2023 at 8:18am
It is not the sunk cost fallacy or a fallacy at all but persistence in the face of obstacles can look like a sunk cost fallacy. The sunk cost “fallacy” can be just the realization that on the margin it is better to finish what you wish you had not started.
Jose Pablo
Nov 13 2023 at 11:52am
The sunk cost “fallacy” can be just the realization that on the margin it is better to finish what you wish you had not started.
That’s not a fallacy. That’s properly taking into account sunk costs.
The “expected future returns” only have to justify the “additional cost” of finishing the “project”. Even if these “expected future returns” don’t justify the cost already incurred, it makes sense (no fallacy involved) to “finish what you wish you had not started”
That’s one of the wonderful things of being an economist … if you are a manager and you have to explain to your board that “we are never to get the returns that we initially expected but still makes sense to invest the amount required to finish the project” you will soon discovered that you can be both, right and fired.
David Seltzer
Nov 13 2023 at 8:31am
Pierre: Good stuff. Sunk costs can become more expensive if one doesn’t determine the probability of recouping losses. A long derivative position moving further out of the money should be closed out as a sunk cost. As an aside, the delta of any option is also the probability of expiring in or out of the money. My issues were with traders who chased losses. I tried counseling those who “wished and hoped” their losing positions would become profitable. All the time spent staring at a screen and not closing out a position meant losses were accumulating. Opportunity cost(s) were incurred by not searching for trades that had a higher probability of being profitable. In my experience managing risk, accepting sunk costs requires emotional discipline.
Richard Fritze
Nov 13 2023 at 8:48am
Prof. Lemieux:
I always enjoy your articles and observations and I usually learn something useful and analytically helpful in the sea of competing and confusing [at times] voices.
Signed, a ‘curious non-economist layman’.
Pierre Lemieux
Nov 13 2023 at 11:11am
Thanks, Richard.
Jose Pablo
Nov 13 2023 at 11:36am
What was your deleted post about?
Sunk costs are irrelevant but certain. Future cost / benefits are all relevant but just a product of our imagination (and very volatile since “future” changes all the time).
For instance, your foreword about the deleted post decreases the future net marginal cost of publishing it (you warned us, so your reputational cost has been reduced) and, on the other hand, knowing that the post “exists” but I can’t read it “creates” the utility of satisfying my curiosity by publishing it.
Come on! … I can resist anything but temptations … (and taxes)
Pierre Lemieux
Nov 13 2023 at 5:35pm
José: It was about abortion, the recent elections and referendums, and Kamala Harris repeating the slogan about “‘their’ own bodies.” Although it contained a precise “proposal” for the text of a constitutional Amendment (in a couple of centuries), it did not add anything substantial to what I already said in my “Economic Reflections on Abortion.” Every 3-6 months or so, I delete a ready-to-publish post that I end up finding uninteresting, not counting all the projects I start to work on but don’t pursue for a number of reasons, including time.
Warren Platts
Nov 15 2023 at 1:13pm
Now you got me curious! Come on! Let’s see it! I’ll bet it’s better than you think…