Posted on April 13, 2014

The Sunk Cost Fallacy

This is something everyone should know about. The idea of a “sunk cost” comes from economics. I first learned it in a college econ course about seven years ago. Nowadays, I see it mentioned all the time, but I’m not sure if general knowledge of it has spread or I’m just more prone to noticing something I’m familiar with (that would be an example of availability bias).

A simple explanation of sunk costs is that there are certain kinds of costs that have no way of being recouped or recovered. In these cases, decision theory holds that it’s best to ignore the sunk costs when deciding what future action you should take.

Whether you honor your commitment to previous plans or not, there’s no recovery of your lost time or spent assets. The fallacy that many fall prey to is the gut reaction that changing your plans is a waste of the resources and effort already put towards something.

But the past has happened and can’t be changed. If there’s no way to recover lost value in the present or future, then heading further down a bad path will only waste even more. From the present forward, you should do what is best for you.

Here’s a simple scenario that illustrates why economics students learn about this.

Imagine a business buys a bunch of expensive hardware, and a year later that hardware is obsolete. They can no longer compete in their industry. Their choices are to invest in more hardware or try to carry on with what they’ve got. They decide to keep using what they’ve already bought, because dammit, that stuff was expensive! Does that sound like a sound business plan? Of course not. Just because they spent money on the hardware doesn’t mean they should muddle through using it when it’s bad for their business. That money is sunk.

The same principles apply outside of the business world. Let me give an example from my own life.

I started college majoring in Chemical Engineering. After a few semesters of long, late night chemistry labs, I realized there was almost nothing I hated more than physically doing chemistry. By then I had already racked up many credits that would only be good towards that particular major. Did that mean I should keep going in a major I hated? No. The time I’d spent on it was a sunk cost; I couldn’t get it back. I needed to do what was best for me, and that was switching majors. Making that decision instantly pushed my graduation date back a year, but throwing even more time into something I didn’t want to stick with would have been even worse.

And years later, it was also knowing about the sunk cost fallacy that allowed me to drop out of my Master’s program. I’d accrued $8,000 dollars of grad school tuition debt. This wasn’t an easy thing to swallow. I still had to pay that money back, and honestly, it felt like I was paying for a bunch of nothing since I didn’t finish. But I’d have had to pay it whether I got a master’s degree or not. In fact, if I’d continued attending, the bill would have been astronomically higher. And for reasons relating to the industry I work in, it wouldn’t have been very helpful for my career either.

As James Altucher (who’s really not an authority on anything, but has an awesome way with words) said:

There is a cognitive bias called “committment bias.” We think because we’ve already put time and energy (or money) into something that we have to stick with it. But this is just a mental bias. Say no to it.

Photo credit: Fire by Mike Poresky

Broken Pillars
Posted on February 21, 2014

Pay Attention to Life Basics

Long ago, when we as a species first learned to farm, professional specialization began. Later the industrial revolution made us specialize even more.

Few of us could now survive by relying only on our own strength. What does that mean? If the infrastructure we depend on disappeared, many of us would die. Unpleasantly.

I’m not talking about prepping for an apocalypse or anything like that. At this point in our development, going back to surviving purely on what you can remember, make, harvest, and kill yourself isn’t even a good idea. Read More

Pirate Flag
Posted on January 19, 2014

The Gray of Book Piracy

Before the Internet came along, people had some behaviors strangely similar to digital pirates. And they didn’t have the slightest notion that what they were doing was wrong.

Have you ever loaned a book to a friend? Used a cassette tape to record a song from the radio? Made a mix tape for a crush? Borrowed a movie? Borrowed a CD? Copied a CD? Read a book from the library? Read a book or a magazine in a bookstore without buying anything? Read More

Silhouettes of people
Posted on December 2, 2013

The Error You Make When Judging the Actions of Others

When someone cuts you off in traffic, you think they’re an asshole. If you cut someone off in traffic, you think you’re in a hurry or there was plenty of room. You aren’t trying to be rude.

When someone is late to meet you, you think they’re inconsiderate and irresponsible. When you’re late to meet someone, you think about the alarm that didn’t go off, how your keys weren’t where you left them, and how all the traffic lights were red on the way over. Really, it’s not your fault. Anyone would have been late in your situation.

We think of our own negative actions as a result of circumstances that make what we do understandable. Meanwhile, we tend to attribute the actions of others to deficiencies of their character, disposition, or personality. This is known as the fundamental attribution error (also called the correspondence bias). Read More

Wrong way traffic sign
Posted on November 11, 2013

7 Reasons We Are Afraid to be Wrong

Most of us do everything we can to avoid thinking about the possibility that we are wrong.

We know “being wrong” is something that can and has happened to us in the past, but it’s mostly just a possibility we abstractly acknowledge. For instance, at this exact moment, I can’t personally think of anything I know I’m wrong about. That might sound arrogant, but can you think of something you think is right, but you’re actually wrong about? Probably not or you wouldn’t think it.

Being wrong feels like being right.

And we are very, very scared of being wrong. Here are some reasons why: Read More

Family Memory Photo
Posted on October 15, 2013

Your Memory is Completely Unreliable

I used to think of human memory as an organic computer hard drive. In that view memories are stored as they happen, and the act of remembering any particular memory would bring it up from your hard drive.

I found it comforting to think that all the things that happened to me were stored away and could be retrieved if I was just able to dig deep enough. That who I was was a product of all the memories I had ever accumulated.

Others have described their memory like a filing cabinet. I guess my view was influenced by growing up with a computer, but the two ideas are similar.

And it turns out they’re both horribly flawed representations of how our brains store memories. Read More

Posted on October 2, 2013

Why People Hate Vegans

I confess: I’ve never thought highly of vegans. You could say I’ve had a prejudice.

I’ve never interacted negatively with a vegan though, so where did my prejudice come from, and why on earth have I found the term ‘vegan’ repulsive in the past?

It’s time for a bit of self-reflection.

According to Wikipedia, being a strict vegetarian (someone who doesn’t eat any animals or animal byproducts) qualifies you as a ‘dietary’ vegan.

I’ve seen comments online like, “I don’t preach and I’m not judgmental of meat eaters. I just choose to eat vegan for health reasons. I own leather belts/shoes/clothes.”

I guess that means that to be a vegan without ‘dietary’ as a prefix, you need a philosophy that goes beyond diet choices. And as is typical with any philosophy, it’s followers believe that spreading their ideals will ultimately improve the world. Read More

Posted on September 19, 2013

Review: Harry Potter and the Methods of Rationality

This is a book review of Harry Potter and the Methods of Rationality (also known as HPMoR for short). HPMoR is a fanfiction.

But wait! Don’t pass judgment yet. This is the most mature and well written fanfiction I’ve ever come across. Not only that, but it’s better than any real books that I’ve read in a long time.

The most interesting thing about Harry Potter and the Methods of Rationality is that it can change how you think. In a good way. And I’m serious about that.

Read More

Posted on August 5, 2013

The Apparently Absurd Can Still Be True

This post is probably entirely too nerdy to be interesting. It also embarrassingly demonstrates why I have a hard time making small talk with non-nerdy strangers and acquaintances. Read at your own risk.

Over dinner, Brian and I got into a heated debate. While we sat at the table eating our homemade pizza, I asked, “You’ve heard of the Monty Hall problem haven’t you?”

Him- “Um?” Read More

Forest Hope
Posted on July 29, 2013

The Truth Is Not Pessimistic

A reader of this blog (who happens to be related to me) has said that my posts are pessimistic. This person also complimented my writing, so I believe they mean well. They just think I’m a bit bleak.

At first I was surprised that my posts were conveying that kind of emotion. It’s almost the complete opposite of what I want: people to be empowered by clarity and knowledge.

I’ve been thinking about it, and I understand now where the communication breakdown happens. Read More

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