Comment by nullc | Hacker News Reader

Comment by nullc | Hacker News Reader

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You don't need to invoke social narratives and consistent behaviors to justify honoring sunk costs.

Sunk costs are often a predictor of a developed position.

For example, you spend 20 years in advancing in field and then worry that you might not like it that much anymore.

If you avoid leaving the field purely because of the sunk time, you are honoring a sunk cost.

If you avoid leaving the field because your 20 years have made you good enough at it that your pay is good and your job stability is assured... and meanwhile you would have a hard time getting hired in a new preferred field or keeping a job there because your expected pay would be unaligned with your experience there (see also: ageism)... then that is just playing the hand you are currently holding.

Usually your current position isn't completely clear. You don't know precisely to what degree 20 years experience have made you better suited to your past field than another.

Under the reasonable assumption that your past costs weren't entirely wasted and aren't perfectly fungible to different moves it is reasonable to use your past costs as a predictor of your current position. 20 year experience in a field is probably worth something, and probably worth a lot more than 5 years.

For sunk costs, you are supposed to consider your all options including the sunk cost project.

For your example your options might look like:

* Stick with industry, 0 year lead time, no cost, possible sadness, low risk

* Slight change, 2 year lead time, $20,000, moderate happiness, medium risk

* Vast change, 10 year lead time, $100,000, unknown happiness, high risk

The fallacy would be giving the first option some sort of financial value because you spend time and money on it in the past. You are just supposed to look at your options looking forward only.

> You are just supposed to look at your options looking forward only.

In most realistic scenarios your estimations of the payoff matrix has a significant uncertainty. It isn't just that there is risk, but your estimation of the risk is uncertain as well (as well as your estimation of your estimation, and so on).

When reasoning under uncertainty we can usually achieve significant benefits from regularizing the decision.

"Do what everyone else is doing", "Keep doing what I was already doing", and "Do what is most consistent with my past investments" are time tested highly effective regularizers. When we are trying to rationalize taking actions that defy billions of years of evolved heuristics for reasoning under uncertainty we call the first 'bandwagon fallacy', the second 'status quo bias', and the third 'sunk cost fallacy'.

There is often a fine line between rational decision making and rationalization. Awareness of the ways that people sometimes make errors in their decisions can be useful, but one should take care to avoid using a little bit of knowledge to come up with specious justifications for poor choices.

Much of the time I see the word 'fallacy' used it sure seems to be sophistry. When a reasoned position is better you can just state why its better outright and the justification will stand up on its own merit without any invocation of a named fallacy.

Man I cannot agree at all. I've personally seen some majorly bad decisions made on the backs of those fallacies.

And I've see it work out brilliantly

I've seen some people get killed after leaving their homes. Better stay inside all the time.

You can't make bias go away just by speaking its name.

Maybe calling it sunk cost heuristic would be better? Acknowledging that most of the time it does work, and then explaining why in this particular situation it does not?

> The fallacy would be giving the first option some sort of financial value because you spend time and money on it in the past.

But when we have sunk costs, we really have a past investment that we have an unknown return upon-- and we're deciding whether to abandon that investment.

If we've made a substantial investment, it can make sense to have a bias towards avoiding actions that definitely invalidate that investment-- a bias towards inaction.

It's rare that a position presents itself where it is completely clear what the future value of different tracks is worth so clearly.

This is a good point and it was going to make it in my original post!

I was going to say that the $1,000,000 price (as opposed to $100,000) tag on a piece of land will tend to be indicative of the value of the piece of land, assuming you weren't in a drunken stupor when you paid a million bucks for it. In other words, most decisions in life aren't bets made in a vacuum.

The inference though is that the million dollar land _was_ worth that much because it was next to a (now-condemned) shopping centre, and the cheaper land was next to nothing; the new subdivision means the values have changed dramatically. Extreme example, but the point is the price paid is irrelevant if circumstances render it so

It is indicative of the value of the land but says very little about whether you should or in what way you should choose to develop either plot. The surrounding economy, zoning and geography will have far more to say about that.

This is true. However, suppose that all you knew about two plots of land was that one was bought for $1m and one was bought for $100k. Then, someone asks you which one you should develop.

Buying land isn't like betting on black. Land has a history, markets are (more or less) efficient, and buyers are usually rational. The sunken cost fallacy suggests the answer is a coin-toss, but in the real world, the correct answer would (usually) be the expensive plot.

I think this comes down to correlation versus causation.

The fact that someone (perhaps yourself) valued a property highly recently is correlated with that property having a high present value. But it does not cause it.

It is possible the million dollar purchase was a mistake, or that something has changed and it's now worth far less. Valuing a property highly may cause you to have paid a lot of money for it, and that might be a reason to assess the current value highly. But that's very, very different from valuing a properly highly because you paid a lot of money for it.

In this case you're merely using history to make a relevant choice about the future. You're not honoring the sunk cost because of the investment, you're just using the lessons your learnt while making this investment.

You are basically just playing with the words, but you also seem to contradict yourself: > you're just using the lessons your learnt while making this investment

That's exactly what honoring sunk costs mean. Making the investment means the cost factor. And using the lessons your learnt means honoring.

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