I don’t like wasting resources. Money, food, and time come quickly to mind as the most obvious examples.
Recently, I realized I have learned how to make better decisions by understanding the interaction between these resources. The net result is a positive impact on my happiness.
For example, last summer I had tickets to an outdoor concert. Unfortunately, it rained the day of the show and the forecast called for more rain, as well as lighting. The venue is a hassle for me to get to, but I very much enjoy shows there. But, the prospect of traveling to see the show in the rain, or worse, an electrical storm canceling the show, was not appealing.
The idea of not going to the show, felt like a waste of money. If I had focused on the money, I would be engaging in the sunk cost fallacy.
Whether I went to the show or not, the money I spent on the tickets was gone—it was a sunk cost. So, the money should not have been a factor in my decision to go or not. It was not relevant. The money was spent either way and the decision should be made simply on my desire to go to the show or not. If I had taken the money into account, “Economists would label this behavior as “irrational”. It is inefficient because it misallocates resources by depending on information that is irrelevant to the decision being made,” per Wikipedia.
I was unable to sell the tickets on the secondary market (Ticketmaster resale or StubHub, for example), because it was too late. If I had been able to sell the tickets and netted less than I had paid (quite possible given the forecast and the big fees from those services), the difference between what I spent and what I recovered would not have been a loss of money because: having already decided not to attend, any money I got from the sale of the tickets would have been a gain. (In the case of this show, I was able to find someone to give the tickets to, via e-mail. They live near the venue and got to see an abbreviated show in the rain.)
As much as I would have liked to see the show, I was happy with my decision, which boiled down to a decision about how I wanted to spend my time, or what I considered a better use of my time—it was not about wasting money, it was about wasting time. This is what I was referring to about how the interaction between resources should inform decision-making. In this case, time and money.
Do you recognize the sunk cost fallacy when it comes into play in your decision-making? If you have any examples of how you have dealt with it, please join the conversation with your comment…