Tuesday, June 27, 2006

sunk and soaked

"Sunk cost" is a concept I picked up from economics. Roughly, sunk cost is a cost toward some future activity that has already been paid and cannot be recovered regardless of whether the future activity is performed or not. A rational actor does not factor sunk costs into decisions and thus avoids the trap of throwing good [whatever] after bad [whatever]. Imagine, on the day of a concert, not feeling like going even if somebody gave you tickets for free, but now imagine that you do have tickets that you already paid $50 for and can't get a refund. If having spent $50 motivates you to go, then you are in the irrational thrall of the "sunk cost fallacy."

Two correlated facts I've noticed about sunk costs are that: (1) productive people commit the sunk cost fallacy constantly and (2) economists seem to commit the sunk cost fallacy in their daily lives at least as often as the economically-innocent. I suspect this is because whatever the demonstrable irrationality of the sunk cost fallacy in particular cases, it's indicative of perseverence, and perseverent people rule the world. Me, on the other hand, the sunk cost fallacy has probably been one of the more toxic concepts ever to enter my head, as I've used it to rationalize abandoning various uncompleted things.

Anyway, I signed up for a 7.5 mile run scheduled for this past Sunday with one of the economists in my program. I woke up that morning and it was pouring rain. Had I known it was going to pour the morning of the race, I would not have assented to do it even if it had been free.

I called the economist, though, and asked if she thought we should still run. And, of course, she wanted to run, because that's the good-perseverent-person-attitude to have. (Plus, unlike me, she had actually trained for it, although training-time would be almost a perfect example of a sunk cost.)

So, I rolled out of bed and basically just wore the same clothes I wore to bed. The exceptions being (1) running socks and shoes, (2) my Madison Mallards floppy hat, and (3) a garbage bag that I wore for the 45 minute walk to the starting line. I took a photo of myself before I headed out the door:

charles river run - before

We were planning on a 10-minute-mile pace, and the economist prepared a playlist of songs exactly so that the tempo would be appropriately matched to the different parts of the run and it would end on her best exercise song ("A Murder of One" by Counting Crows, intriguingly enough). We actually did more like a 9:30 pace and so this song was just starting when we finished.Meanwhile, I just had my Nano on my usual kicky exercise shuffle, with the result that I started the race with "The Humpty Dance" and ended it with "Friday, I'm in Love", the latter being a former breakup-anthem I've since reclaimed as jogging-rejuvenator.

I think the economist thought I was a strange for some of my race practices, namely insisting that we high-five after every mile and regularly shouting "We are tough! We are so tough!"

Ultimately, the sunk cost fallacy here wasn't much of a fallacy, since the run was actually fun and it wasn't even raining for much of the race. Most of the runners had on baseball caps, but I received several complements for being the only one with a floppy hat. In any event, I returned home happy even if completely soaked through:

charles river run - after


Anonymous said...

Boy, you weren't kidding about never taking off that shirt, were you? Sister A is great at gift selection.


Kieran said...

Sunk costs are conceptually very closely related to the idea of precommitment, which is generally not taken to be a fallacy of decision but rather a means of securing one's intended outcome in the face of weakness of will. Discuss.

jeremy said...

I think sunk costs and precommittment are both terms in discussions of intertemporal choice, so some kind of precommittment can be made at an earlier point in time to prevent someone from making a decision that ignores sunk costs at a later point in time, but sunk cost problems happen in very different contexts as well. Namely, cases where a rational investment just did not work out as planned, and so then the actor needs to figure out whether to follow that up with more investment or exit.

Anonymous said...

despite your claims, you look happier in the before shot. why is that?

Kieran said...

OK, you pass.

On the other hand, weakness of the will does not go away so easily. In particular, the judgment "This rational investment just didn't work out as planned" is precisely the kind of thing a weak-willed individual would (rationally) say at the appropriate moment, even if their earlier and later selves would strongly disagree with this assessment.

dorotha said...

that... hat. if you had kids, i think they would be claiming that they would never speak to you again if you were to ever wear it in public again.

Anonymous said...

I like to think it was the Humpty Dance that gave you the extra kick needed to make it under the 10 min mile mark.

Tom Bozzo said...

That garbage bag is really slick.

Now, an economist might say that you weren't really dealing with a pure sunk cost problem -- given that you're running with somebody, and reportedly a female somebody at that, you could have utility to forego other than the difference between running (by yourself) and your next highest valued activity.

BTW, back when I had time to golf, I pretty happily walked off of golf courses in mid-round during miserable playing conditions, despite the disapprobation of colleagues who were more inclined to persevere (and less inclined to solve the sunk cost problem) than me.