My mother spent three weeks in the hospital in August. Her extended stay affected me in lots of little ways I couldn’t anticipate. To escape my daily worries, I went searching for a little solace — I re-activated my World of Warcraft account.
World of Warcraft is a subscription-based online computer game. As a player, you become immersed in a virtual fantasy world, interacting with thousands of other players from around the globe. It’s great fun. Enjoyed in moderation, World of Warcraft (or any other computer game) can be a fantastic pastime.
Unfortunately, I’m not so good with enjoying things in moderation. I had quit the game cold turkey several years ago because it was consuming my life. This time, I made an effort to keep my play under control. For the first week, I limited myself to an hour a day. By last week, however, I was playing at least four hours every day, and other areas of my life — my fitness, my mental health, my relationships — were beginning to suffer.
“But I can’t quit,” I thought. “I paid $77.94 for a six-month subscription. Plus I’ve already invested 80 hours into the game. I should keep going.” This line of thinking was dumb, and I knew it. The money had already been spent, as had the time. It was gone. Chasing it with additional money and additional time wouldn’t make things better. I was engaging in the sunk-cost fallacy.
The Sunk-Cost Fallacy
The sunk-cost fallacy describes our tendency to throw good money after bad. Just because you’ve already spent money on something doesn’t mean you should continue spending money on it. Sometimes the opposite is true. Psychologically, the more you spend on something, the less you’re willing to let it go. In Why Smart People Make Big Money Mistakes (and How to Correct Them), the authors write:
Once your money is spent, it’s gone. It has no relevance. To the extent you can incorporate that notion into your financial decisions, you’ll be that much better off for trying. If you’re debating the sale of an investment (or a home), for example, remember that your goal is to maximize your wealth and your enjoyment. The goal is not to justify your decision to buy the investment at whatever price you originally paid for it. Who cares? What counts, in terms of getting where you want to be tomorrow, is what that investment is worth today.
It’s important not to consider past costs when making financial decisions, but to make decisions based on future costs and benefits.
Often we succumb to the sunk-cost fallacy because we don’t want to feel wasteful or to admit we made a mistake. All that Stuff I’m trying to get out of my life is nothing more than a manifestation of this: I know how much money I’ve spent for the things I own, and so am reluctant to let them go. What I need to realize is that it’s not what these things were worth to me in the past that’s important, but how much they’re worth to me now. If I do not value them, and they’re just taking up space, then they’re better off out of the house.
Learning to Walk Away
We all make financial mistakes. When you realize you’ve done something wrong, try not to think about the money (and time and emotion) you’ve already spent. Instead, decide what to do based on the future. From Why Smart People Make Big Money Mistakes:
Imagine that you’ve got a ten-year-old minivan that needs a new transmission. The sunk cost fallacy tells us that you’re more likely to plunk down the money for the new transmission if you’ve recently sunk hundreds or thousands on repairs into your clunker before that. So ask yourself: If someone gave you that minivan as a gift yesterday, would you spend the money today to get it running? If the answer is “no” — because that large an investment is not worth it on its merit — then it’s probably time to think about buying a new car.
Similarly, it is relevant only to your ego that your Amalgamated Thingamabobs stock, for which you paid $100 a share, is now selling for $25 a share. If you believe that lower price is a bargain, hold on and maybe even buy more shares. But if it is not — if, given the chance, you would pass on the opportunity to buy the same shares at any price today — then it is time to sell.
When Kris and I were young and stupid, we paid $1200 to join a “consumers club”, through which we could purchase furniture and housewares for reduced prices. Though the sales pitch had been convincing, it quickly became clear that this was a bad deal for us. We had to drive half an hour to reach the club, and when we got there, they never really had what we wanted. Yet we remained members for many years, dutifully paying the $75 annual fee. “We’ve already spent so much,” we’d say. “It doesn’t make sense to quit.”
Eventually we wised up. Just because we’d already spent a ton of money, that didn’t justify continuing to do so.
Similarly, I’ve come to my senses about World of Warcraft. I’ve decided to say good-bye to Jahdu, my level 42 Orcish hunter. It hurts to think of the $77.94 I paid for a six-month subscription “going to waste” — not to mention all the time I spent over the past few weeks — but I know that it’s better not to pine after sunk costs, and will instead look to the future.
I’ll get better value from my time if I spend it reading and writing about personal finance!
Another Real-Life Example of Sunk-Costs
Last March, I decided to tackle my physical fitness by setting some big goals for myself. One of those was to go from couch-potato to marathon runner in about six months. To goad myself into action, I paid about $100 (non-refundable, non-transferable) to sign up for the Portland Marathon (which is being run at this very moment).
For a while, this seemed like a brilliant idea. Having paid for the marathon in advance, I was motivated to train so that my money didn’t go to waste. I began to run with a group. I lost weight. I felt great.
At the end of May, however, I hurt myself. I took some time off. I didn’t worry too much, because there were still four months left before the marathon. But when I tried to return to running, the pain persisted. I went to see a physical therapist. June turned to July turned to August. Eventually I decided that maybe I could walk the marathon. I’d paid $100 for it, dammit, and I wasn’t going to let that money go to waste!
Over the last couple months, however, I’ve come to realize that I’m engaging in the sunk-cost fallacy again. The fact that I’ve already spent $100 for the marathon is meaningless. It’s a sunk cost. It’s not recoverable. What matters is the future cost in time and money. And, as it turns out, health.
I could have continued to push myself to prepare for the marathon, but the most likely result would have been additional doctor bills and physical therapy visits. I would be spending future money attempting to make past money “good” again.
Instead, I’ve changed my focus.
I’ve begun to prepare for the 2009 Portland Marathon. I’m running short distances (three miles) a couple times a week. I’m lifting weights to build my leg strength. Meanwhile, I’ve learned a lesson. In the future, I won’t sign up for the marathon until later in the summer, when I’m sure that I’m physically ready to go.
One More…
In late June, I laid out plans for a five-week trip to England (and beyond). I was going to hike Hadrian’s Wall, take in an Everton football match (or two), visit Bath and Wells, and — best of all — spend time with GRS readers all across Great Britain. (And possibly in France and/or The Netherlands, as well.) On July 4th, I bought a one-way ticket to London, and was looking forward to having a series of small adventures.
That’s my dream world.
In the Real World, things didn’t go as planned:
Mom got sick. My family is still wrestling with her situation. It looks like she’ll move from the “memory care unit” to a regular apartment in the assisted-living facility, but she’s not happy about being there. Plus, her finances are a mess. Of the family members, I’m the most logical person (and the only one with time) to untangle things.
Meanwhile, my own house has problems. The roof is leaking. In most places, this isn’t an issue during the summer, but I live in Oregon. We’ve had some heavy rainstorms, and these have revealed a leak coming into the guest room upstairs. So, we’re trying to hire a roofer to begin work soon. Trying is the key word here. All of the roofers are flooded with work because it took so long for the rain to let up this year.
I’ve received a jury summons for early September, right when I’d hoped to be in France and/or The Netherlands.
Kris, who had thought she was okay with me being gone, isn’t quite ready for me travel on my own for an extended period. This may sound unimportant, but it isn’t. She needs to be comfortable with this too before I take off on my grand adventures. By delaying a couple of months, it gives her time to get adjusted to the idea.
There are other smaller problems, too. Taken together, these factors have forced me to admit that now is not a good time to make a solo trip to England. My adventures will have to wait.
Sunk Costs
What does this all have to do with money? Well, I’m about to present an object lesson in sunk costs.
Kris and I talked long and hard about the decision. She was actually more in favor of me going than I was. “You’ve already bought the ticket,” she told me. “You shouldn’t let that go to waste.”
“I don’t want to waste it,” I said. “But it’s a sunk cost. It’s not a factor in the decision. That money has already been spent whether I go or not.”
I’ve tried to write about sunk costs twice before but without much success. (Here’s the first time and the second.) And whenever I mention sunk costs in passing, people misinterpret my meaning. For some reason, the popular (and incorrect) definition of “sunk cost” equates to something like “dumb spending” or “spending you shouldn’t have done”. But that’s not what the term means.Sunk costs are simply costs that have already been incurred and cannot be recovered.
Sunk costs are neither good nor bad. They just are. There’s no value associated with them at all. (In fact, it’s when we assign values to sunk costs that we make poor decisions.) Thus, sunk costs shouldn’t be considered when making a decision.
In my case, I tried to recover my costs. I contacted my friend Chris Guillebeau for his help. He explained how plane tickets work. “It’s all about the terms and conditions,” he told me. “If your ticket is refundable, you’re good. Even if it’s not, you can usually reschedule or get some sort of flight credit.”
So, I called around to see if I could get a refund or somehow reschedule my flight. For once, though, my frugal habits worked against me. I bought my one-way ticket to London for $900, a full $500 less than any other ticket I could find for the same itinerary. But one of the reasons my ticket was so cheap was that it was fixed — I couldn’t change anything about it. (I’ve never had to change a ticket before in my life, and I didn’t expect I’d have to change this one.)
Bottom line: I spent $900 on a plane ticket that had to be used or lost.
Last week, when it came time to decide whether I was actually going to London, I didn’t even consider the cost of the ticket. If I flew to England, I was out the $900. But if I stayed home, I was out the $900 too. This is the purest example of a sunk cost I can imagine! As a result, I was able to make my decision based solely on the pros and cons of each option.
Staying Home
Leaving aside the money I spent to buy the ticket, it makes more sense for me to stay home. I hate doing it — I want to travel! — but it’s the best choice for my mother, my wife, and my house.
I don’t feel bad, though. I know there’s lots of travel in my future. It took days for me to decide to skip my trip to England, and during that time, Kris and I had some long talks. During these discussions, we agreed that in exchange for staying home now, my trip to Latin America in October is a sure thing. Nothing will stop that. I’m plotting other trips too, including a possible trip to Antarctica with Chris Guillebeau where I hope to make Your Money: The Missing Manual the second-best selling book on the continent.
Plus, by waiting eight weeks, I’ll have more time to tackle some other projects. I’ll be able to get my diet and fitness back on track. (They’ve taken a hit over the past month!) I’ll have an extra eight weeks to learn Spanish. (I’ve been taking classes for a couple of months now. Me gusta es mucho.) And, perhaps best of all, I’ll have extra time to purge the Stuff that’s been causing me so much consternation around here.
And you know what? Now, I’ll have more time to write here at Get Rich Slowly! Even though it feels like I’m wasting $900 by skipping my trip to London, I know it’s the smart decision.
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.
Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)
Yes! Sign up and get your free gift
There are 283 comments to "The sunk-cost fallacy: Throwing good money after bad".
Tina from Frugal Sisters says08 September 2008 at 09:19
My expercience is a lot more dramatic. On the day of my first wedding I had a fleeting moment of becoming a run-away bride. The only reason I didn’t leave my x-husband at the alter was the money that I had already put into the wedding. Well, I should have left him at the alter. It cost me a lot of money and stress to be married to a man that didn’t know what it meant to save a penny. He spent every penny we both made and more. I didn’t know that he had borrowed money from my family until after the divorce. This lesson I learned the hard way.
Jonathan from Master Your Card says08 September 2008 at 09:40
WoW is a perfect example of the sunk-cost fallacy, and one that hits particularly close to home. There’s something disturbingly addictive about MMORPG’s (to me, anyway), and I’ve always stayed away from them as much as I can because I’m not sure if I have the willpower to get out once I truly get in.
J.D, don’t know if you have ever seen http://www.wowdetox.com/. If not, it is well worth a quick browse every now and again. It will put you off of going back to the dark side in no time at all 🙂
Nice, Jonathan. I’d never seen that site before. The second comment on the front page right now has a perfect example of the sunk-cost fallacy:
#33371
I hate WoW. It turned my friend into a mindless freak. He was so obsessed with the game, when he called once, I told him I was at my grandmother’s funeral. And the only thing he could say was
“What? You can’t play later?”
And he’s lost his social life and has become a total loser because “I need to finish up my one month WoW card.”
And Tina, your example is perfect, too. (Though I’m sorry you had to go through it.)
I should have pointed out in the article that salesmen use the sunk-cost fallacy all the time. “You’ve already invested X amount of time or Y amount of money in your Thneed — you should really invest a little more.”
I have had quite the similar experience. I played Diablo 2, another product by Blizzard, which totally took over my life. I wasted a lot of time playing instead of studying. Even though the online play was free, it does mess up many aspects of our lives.
i’ve had a world of warcraft account for almost 2 years now.. i don’t know how to feel about it.. it has it’s positives and negatives..
one positive is you save money because you spend most of your time indoors.. it is a great time killer
you already mentioned the negatives (takes over your life, mental and physical health, etc..).. i’ve even heard stories of this game ruining relationships
i rarely play anymore.. but i keep my account on because my brother plays a lot more than i do..
i have a 70 dwarf warrior (alliance).. and another orc warrior (horde) that i’ve yet to level.. i think he’s at 12 right now
i rarely see some of my friends anymore because they are so into this game.. it was fun playing w/ them for a while.. but after a while you just get tired of it.. i have other interests besides playing a game hours in a day
i’m already sitting at a desk 40 hours a week.. i don’t want to be doing that another 20 hours playing warcraft
madden 2009 is my new addiction these days lol.. i’ve played over 100 games online already.. and i’ve only had the game a month =O
I have a completely different experience with World of Warcraft. I downloaded the demo, played it, and liked it… and realized I’d love it as a casual game for a couple hours every other weekend.
I realized I’d never really advance at that rate. Honestly, that doesn’t bother me much, though it would make it hard to group.
I realized I’d be paying the same amount as someone who played 20 or more hours a week.
And I decided to just let the trial expire. Why pay for extra frustration in my life?
WoW is what you make it to be. For awhile when I was between jobs I played a lot. So much that my husband informed me that it was kind of taking over my life more than it should. I listened to him and I stopped playing as much. Now I organize my WoW time around my calendar, instead of the other way around.
However, I must say that I have met some really amazing and fun people on WoW. I’m not a very social person, and this game has made it really fun to talk to people in kind of an anonymous way.
There is a healthy balance, really anything can become an addiction. It is kind of shame that video games gets the brunt of shame, when there are other worse addictions out there.
I love WoW as casual game. 11 € a month for unlimited time has saved me a lot of money by not buying other entertainment just to pass some idle time. Learning to take it in moderation is the important thing.
I was addicted to WoW for quite some time. The first few days I owned it, I played it 14 hours per day. It was ridiculous. I had to learn the hard way to just walk away, even though I was really attached to my character and all the time and energy I put into the game.
“remember that your goal is to maximize your wealth and your enjoyment.”
I think that this is a great way to look at things. Playing it out in the WoW example, if you’ve spent $80, and played 80 hours, and enjoyed them, then you’ve spent about a dollar an hour for something you enjoyed. If that enjoyment was worth a dollar an hour, then you’re already ahead.
Looking at the other way, you’re now noticing that other facets of your life are starting to suffer, so in this case, to maximize your enjoyment (of your overall life), then stopping is the right choice no matter how you look at it.
This is a common problem with new Hold ‘Em players. They hate the idea of folding if they’ve already put any money into the pot. The more they put in, the more they hate to fold. Even if their hand gets progressively worse and it becomes increasingly obvious the other side bluffed you into staying in the game in the first place. They just keep hanging onto that slim chance of getting their money back rather than kiss all those chips goodbye for good. For the same reason, even if they have a good hand, they’ll fold if another player tries to make them go all in — even if they would have slowly bet pretty much all of it anyway. That fear of loss is greater than the promise of the win! Craziness!!
Thats exactly where I saw myself going with WoW after only 2 weeks of playing it. It was going to be expensive AND consume mountains of my free time. I ended up selling my game and remaining trial on ebay, only losing like $10 or so. Distractions like this are a terrible thing though, and probably costing even more than the monetary cost to play.
I wasted a good bit of that solid-GPA-building freshman year of college playing Starcraft. I actually ‘infected’ my dorm by introducing it to everyone, and instead of studying we’d play Starcraft. Studying became something that I crammed in, not made time for. And just when we were done playing Starcraft by Christmas time, Broodwar was released during the break and it began all over again for that 2nd semester. In the big picture, if I would have had less Distractions like this, I probably would have been able to get off to a better start in college. A game, which undoubtedly was and is fun to play, pretty much helped to bring out laziness and set an initial tone of mediocrity for my college career. Looking back, it definitely was not worth what I got out of it, which is nothing, and I now always wonder how much better I could have initially done in college without SC, as well with fewer other Distractions (outside of ‘weekend gatherings’, of course) that I had.
World of Warcraft has been a great tool *for* my financial well-being.
WOW is the only game I play now.
Instead of looking at it as a $15 recurring cost, I look at what it’s saving me.
I don’t buy other video games. That’s a savings of $50-$150 per month right there. I only go out to see movies that I really really want to see (saving me $20 a week at least). Same with going out to restaurants.
Sure, there’s something to be said against a life of WOW-inspired hermitage, but financially, it makes a lot of sense 🙂
The same sunk-cost fallacy is what kept me from throwing out the miniatures I commented about in another post here recently.
I had spent so much money, even though it was almost 15 years ago, that I couldn’t justify dumping everything. I think people do this more than they realize.
Right now I’ve got a sunk-cost fallacy issue sitting by the curb in front of my house. We have a paid-for car that we bought early this year for $2000. We just put $800 into repairing it, and now it needs another $400 to get running again. I have a tentative offer from my mechanic to buy it for $450. We could fix and sell it, and make maybe $1500 total (less repairs, net $1100), but more like $1000 ($600).
I’m thinking if he’ll pay to tow it, he can have it for the $450. I don’t think it’s worth my time and money at this point to deal with.
Wow, that was longer ago than I thought it was, but anyhow:
I generally agree with the concept of the sunk-cost fallacy, and I can see where it’d go with WoW, but for me and my wife, it’s probably some of the best $30 we spend each month.
In terms of dollars-per-hour, it’s fairly cheap, and the more you play, the more you get out of your money.
Like all things, people need to exercise moderation. As mentioned in the post, we do other things. I don’t think I’ve played more than an hour at a time for a few weeks now. We’ll often plan out a WoW night and play for a few hours then, but those are coming fewer and farther between. Between my jobs and her graduate student work, there isn’t time for it.
With control, it’s a great recreation. It can be done, and my wife and I are living proof of it.
I appreciate that you’re using it for the specific example here, but I’ve also read a lot of stuff that says basically WoW=wasted time and cash, which simply isn’t true as a generalization. It’s cheaper than buying a bunch of DVDs, the time aspect can be controlled, and there’s a myriad of ways to enjoy yourself. My wife and I both have our endgame raiding characters, but we also have our little lowbies to play around with for something different.
The time spent playing together only strengthens our relationship, and so it’s not a waste at all. It’s one of the stronger positive forces in my life right now, and I’d hate for people to think that it’s just a stupid time- and money-sink with it all going to waste.
I’m with you on this one…I had a similar experience with Diablo 2. It was a huge time-sink, and when I was online with friends, I felt obligated to keep playing…I didn’t want to let them down. It ended up leading to a serious discussion with my wife (not the pleasent kind). We worked it out and I walked away.
I think any sort of reality escape can get out of hand, WoW is just really good at it.
Thanks for sharing your experience I have never played but there are certain things in my life I can compare this with its nice to realize when you fall you can always get back on track!
We have a similar situation, but with a dog. He is a rescue dog, and have been working with him for 5 months. So far we have purchased licence, crate, dog bed, toys, new fence, dog training classes, vet bills, and lots of time and aggravation, but he is still not meshed with our family. The whole idea is that eventually he will be a good companion animal that we will have for many years, but the payoff right now has only been stress on our marriage. But at the least he is a living creature, not a video game.
I agree that World of Warcraft (and all Blizzard games, to be honest) is a great value financially in terms of getting pleasure for what you spend on it. It’s some of the best cheap fun I’ve ever had in my life.
HOWEVER, it’s not a good value for ME in terms of time, self-esteem, and money I forego by playing. Because it takes a huge amount of my time (because I’m not personally able to exercise restraint), I get less writing done, and less writing means less income.
I wish I were one of those people who could play just a couple hours a week, but I’m not.
Also, I think some of you are missing the point. I’m not arguing that World of Warcraft is a bad thing. I’m using it as an example of me succumbing to the sunk-cost fallacy. If I were to justify my continued playing because (a) I’d already spent money on the next five months and (b) I’d already devoted 80 hours to the game, I’d basically be falling into this trap. What I’m saying is that it’s important for me to cast aside this thinking and make my decision based on the future benefit it would bring me…
This post was intended to be about the sunk-cost fallacy, not about World of Warcraft. 🙂
I’ve heard of a guy going to his lay minister for dating advice (I heard the story through the minister). The guy had been dating a girl for quite some time, so he figured he kind of had to marry her after investing all that in the relationship.
The minister was an economics professor in his day job. He told this guy, straight up, “It’s a sunk cost. Forget it. Move on.”
But it seems like there might be times when we should take sunk costs into account. I can’t think of any examples, though–can anyone else?
I absolutely love this post. It reminds me of working at a dot-com company in the first bubble and as all dot-com stocks started to fall before the collapse everyone would talk about “averaging down”. That is, buying more shares while the price fell to reduce their average price paid per share. But whichever way you cut it, you’re still committing more money to a losing investment, and most of those people ended up “averaging down” in an entirely different way than they’d hoped…
I wish I saw this sooner, but then, I was preoccupied with the Freddie and Fannie takeover….
I had a WOW account. I think I played in moderation (although I use that term loosely), but ultimately canceled it because I didn’t want to pay the monthly fee.
I use to play Diablo 2, Warcraft 3, and Starcraft all the time too. They were more time-sink than money-sinks I think….
I’m now on Team Fortress 2, but again, more of a time-sink. Again, I don’t think I over-do it. Just started playing again last weekend, but only because a friend asked.
I almost fell into the sunk cost fallacy when I bought a sportscar last year. It’s a gorgeous car (Audi TT Special Edition) and I was really in love with it for a number of months. I think I wanted it because I’ve never had a car like that in my life and figured I was successful and deserved it. I can totally afford the car, or even a much more expensive car for that matter. The truth is that it’s just an impractical third car for me and mostly sits in the garage looking pretty. I rarely have a chance to drive it due to the fact that I run a small business that consumes my time and requires the ability to transport tools and pinball machines.
I’ve been going back and forth in my mind over whether I should keep it or just take the depreciation hit now (about 8K!) before it depreciates even further. I’ve decided to sell it. It’s on Craigslist now with a couple of interested parties. If it’s not sold by the end of the month, I’m selling it back to the dealer I purchased it from, taking a somewhat bigger loss, but it will be out of my garage and out of my mind. What I’ve also done was traded in my old 2002 Subaru for a brand new work vehicle, a Honda Element. I love the new vehicle and would rather drive it than the fancy sportscar!
Boy I blew it this year, and I mean that. I set us up on a savings plan this year and had it planned out that we would have 10k by the end of the year (I am the only income earner). Excited my hubby and I worked on the plan and saved over 5k. Then summer hit, bam. We blew it… we now have 2k on our CC and have dwindled our savings down to 2.5k.
I suppose I should have paid off all of our debt first instead of building up this large savings account.
Sunk cost fallacy – I am now planning to pay down our debt first. I do not want to sink money again into savings when I have debt that could have been reduced.
We had the same experience with our dog Mulder. Week by week we wanted to take him back to the shelter. On the 4th week or so, I looked at him and felt sorry…then I looked at my husband. He said “ok, let’s do everything we can to make him part of the family”. We never looked back, he is our pride and joy, now almost a year old. It takes work but it is totally worth it. Watch the Dog Whisperer shows on NatGeo and read Cesar Millan’s books. Before you know it he will be an obedient doggie. We also save money on entertainment because we enjoy just hiking with him etc.
The irony of all of this is that by quitting and writing about WOW (a very popular and polarizing topic), you may have driven more traffic to your site and thus more income. Chances are if enough people start reading your blog because of this entry, that $80 dollars might be some of the best money you have ever spent.
I do not feel this to be a Sunk-cost. Both my fiance and I play WoW and we play together. We think it’s a good social outlet, and nice way to spend some time together. Look at it this way, spend $15.00 a month (30.00 in our case) to be able to enjoy something together on our free time, which would otherwise be spent (and then some)on going out say…for the weekend. Drinks for two? You would spend about that same amount in just one weekend, let alone a whole month.
For us, WoW is helping us stay in and save money, not uselessly spending it.
Ok, I guess in a way you can view this as a form of sunk-cost fallacy, but the other way to view it is perfectly logical. The first hour you play costs you $x. After you’ve paid that $x, the hours you play between then and six months from then are free. *IF* the marginal benefit of each of those hours is greater than zero, then you should play.
I think what you are saying is that the benefit was not > 0 because it was affecting other areas of your life. You are not losing additional money if you don’t continue to play, but I don’t think this is the best case of the fallacy, because marginal benefit over marginal cost increases after the first hour (or first minute, really). If you are risking losing your job because of the game, then that’s probably a greater cost than benefit, eh?
Sunk-cost really is a terrible fallacy, because it is so common and so irrational. So I’m glad to see it mentioned, regardless.
I have to admit, I would have tackled your problem from the other end: by scheduling your playtime, and using the parental controls to enforce them, with your wife to back it up. I’ve found that just the fact of being accountable to someone else for the way I spend my time has a great effect in limiting wasted time, and once you fall into the habit of only playing during your allotted hours, you probably would not have found it that hard to live with the restriction.
I don’t think I made it clear what the sunk-cost fallacy is. People seem to be equating “sunk cost” with “waste of money”, and while there’s an element of that here, they’re not the same thing.
Even something good can have a sunk cost. A sunk cost is just anything you’ve already spent. It’s not necessarily good or bad — it just is. The sunk-cost fallacy is believing you should spend more because you’ve already spent some. That’s what I was trying to write about.
Alas, I may have to tackle this topic again in the future…
I did the same sort of thing (obsessive play) with Dune and then Dune 2000 several years ago but at least it never cost me more money than purchasing the game itself.
Honestly, I’d still play it if the the disk hadn’t gotten so badly scratched that a third of it won’t work (the Atreides levels beyond the first one).
My own personal sunk-cost fallacy is with all you can eat buffets. It’s a great place to bring the kids because there is no wait for the food and it keeps them entertained but I find myself eating way too much trying to get “my money’s worth”.
J.D. I dont think it was you who are a bad writer, you quoted someone else “The sunk-cost fallacy describes our tendency to throw good money after bad.”
J.D., a good post, but a bit of nuance is needed. As someone trained in economics, I’ve long known of the sunk-cost fallacy. It’s a real problem and people screw up on it all the time.
But I wouldn’t say one should ignore completely what was paid for something, and just focus on future costs. The difference is between fungible goods and investments.
If you paid 10 bucks for a movie ticket, and you go in and find the movie horribly disgusting and revolting. It’s definitely a mistake, and sunk-cost fallacy, to sit there and say, “but I spent 10 bucks on this movie, so I need to stay”. Money’s gone. Only question now is whether you’d be better off staying or going.
Applied to investments, this gets trickier. Because while it is true that some people could fall into a sunk-cost fallacy that keeps them locked into a bad situation because of what they have already spent (rather than cutting their losses), it is also possible that people might misjudge the question of whether it is time to cut losses. In other words, with investments, the money is not entirely sunk. It calls for judgment and the sunk-cost fallacy is essentially a narrow version of the basic common sense principle of detachment. In this case, detachment from our need to not admit a mistake in past acts.
Here’s an example of sunk cost (from 2 years ago): Paying for a three-month subscription (instead of a one-month subscription) to a personals website, and one week into it meeting the man who I’ll be marrying in a couple months. There was a little more benefit to walking away from the paid subscription in that case, though.
I have pretty mixed feelings about WoW. I’m one of only 3 women who play in my guild; my husband got me into the game because it was causing a lot of trouble in our marriage. Essentially, he brought me down with him so I would stop arguing with him about the time he spent playing.
I now have a fully epic, level 70 hunter. I go on raids that take 3-5 hours at a time. We never go out. We trade time with each other so one can raid and the other watch the kids. We’ve invested so much I have never thought much about quitting the game, or that perhaps I stay because I worked hard for those epic boots.
Reading this post made me think about this. JD, I know you meant for this to be about sunk-cost fallacies, but talking about WoW hits a nerve because of its addictive nature. It took me a year to level a character (some people level to 70 in a month or two) because I played only occasionally, but lately I too have been using WoW to escape some pretty serious problems in my life. On top of the time spent and the cost involved, there is the issue of my husband’s obsession as well.
What would I do if I actually quit the game? Other than the extra $13/month, would I make real friends, in the city where I live, rather than talk to people I don’t really know and have never seen? And what would happen to my marriage? Would it crumble into pieces if my husband and I did not have this one thing in common? To tell the truth, WoW is what we talk about, when we talk.
Your post has given me a lot to think about. This, in effect, is what good writing is about — making people think. So, do not feel like you’ve failed in your writing; you’ve merely pushed a button you probably did not expect to push, and the sunk-cost allegory was lost in the shuffle.
I started playing in Sept 2005, 3 years ago. I made alot of friends in that game while we raided MC/BWL, some of them actually live within a few hours of my house.
I’ve quit the game a few times since then, recently picking it up again. I found the best way to subscribe is to either get a 60 day game card, or just pay for one month with your CC, then after that you immediately go back in and cancel the recurring subscription. You’ll save a few bucks (per month) if you buy the 6 month deal, but I’d rather pay the extra dollar each month. If I only play for 2 months, then i’ve spent $30 rather than wasting 4 months & $60 if I’d bought the 6 month package.
During that month, you’ll know if you want to carry on for another month or if you want to put it on the shelf for a while.
It is a fantastic game for our long cold Canadian winters when we’re cooped up inside most days!
$15/month is cheap entertainment since I don’t have cable/satellite TV, don’t rent movies, don’t go to bars, etc…
I have toons on a PVE server, and recently got a few 70s on PVP servers (ALL Horde toons, NO Alliance!). It’s really cheap, but I love waiting for an Alliance (even if they’re much lower than me) to start fighting some mobs and then gank them. Hee hee, that’s almost worth the $15 each time you do that.
Got me through graduate school, and continues to make it hard to just walk away, although I wasn’t able to get a job in my field and am now in a completely different line of work. Let my professional organization memberships lapse, but I still have a pile of books and old notes. Not about the money, but about the time.
I think many of the comments here speak volumes about why personal finance is so hard for some people.
There’s no reason to avoid World of Warcraft, Diablo, Spore or any other video game. Just use a shred of moderation. Completely removing something from your life is the easy way out of a problem, without actually addressing the cause.
I think relationships can be a good example of a sunk-cost fallacy – how many people continue to stick out a bad situation only because it’s “been so long”?
I am also wondering when you reach that point with investments whose value is dropping. For example, my 401K is going down the drain, but I’m still putting money into it… Do I rebalance? Hold? Fold?
J.D., you’ve put a tag on the pain I’ve been feeling lately.
Five years ago, my wife and I built our “dream home” (I have come to hate that expression) in the country. We were able to do this in large part because we have always lived a frugal life as a married couple. For 10 years we worked to eliminate all school debt and the mortgage on our modest townhouse as we planned an ecological country home in which to raise our family.
To make a long story short, the building process blew us out of the water. From the moment we moved into our country house, it was clear we had made the wrong decision. The house was incomplete and the mortgage was 30% higher than we had anticipated.
But what were we to do? We had already sunk so much money into it. We couldn’t just walk away. We were invested, and we needed to finish the house and to show our children that you don’t just walk away from your mistakes. Sunk-cost fallacy written big.
So for the last five years, we did what we always do: budget tightly; garden; work like stink to pay down the mortgage, and do away with almost all non essentials while I worked to complete the house myself. We were paying down our new mortgage, but we weren’t having any fun.
This spring we finally decided to “cut our losses,” and we put our house for sale. Guess what? All summer only four people came out to see our “dream” house. Even though the housing market is still in pretty good shape up here in Ontario, we’re going to get hosed. Now all I can think of is all the smarter things I could have done with my money. Kind of a combo sunk-cost fallacy / buyer’s remorse complex 🙂
All that dreaming, cost, effort, heart ache, and mortgage interest are gone. Intellectually, I know the best perspective is to just walk away from the sunk costs. Emotionally, it’s very painful. Reading everyone else’s stories helps.
In my opinion the main sunk cost in WoW isn’t the subscription you’ve paid for, it’s the stupidly high level of time that you have already invested in your character(s) – the opportunities forgone (like keeping your friends, improving yourself and spending time with your family).
“Enjoyed in moderation, World of Warcraft can be a fantastic pastime.”
I TOTALLY disagree. WoW is an absolutely HORRIBLE game. Terrible. Trust me, I have four 60s and a 70. It’s incredibly fun, but from a game design point of view it’s awful. Just like a slot machine – entertainment, pretty lights and sounds, but in terms of gameplay it gets blown out of the water by pong. The developers didn’t try to make a game, they tried to make an Everquest style virtual world, and added poor gaming elements to it when it sucked. But by far the largest aspect of the ‘gameplay’ is still defined by this stupid virtual world idea which has failed, so to do any gaming in WoW you are crushed by the presence of the virtual world idea. Just being able to sell your stuff for example, means 10 minutes spent afk flying to the AH, then 10 mins back to where you were. That’s a simple example, and it only gets worse as you level. If you want a virtual world play D&D. If you don’t then play TF2. You make it sound like “if only I had the time or could control myself it would be really entertaining and a great thing to do in my spare time…” – don’t think like that! Trust me, the facepalm-rate of WoW increases exponentially the more you play. Be glad you got out when you did. By quitting you have learned WoW’s most valuable lesson and have nothing left to get out of it.
You bring up something I’ve thought about a bit in the past – considering sunk costs in decision making rather than trying to look past them.
When should you consider sunk costs? Any time you are not making a business decision. If you are making decisions in your love life or on a personal matter, I feel that you should factor in emotion and pleasure that the person brings into your life – not just how much you’ve spent in the relationship. Since these issues are not business decisions, the sunk cost fallacy doesn’t cleanly apply. Sure, you can analyze how much you’ve spent on someone, but there is an emotional aspect that is intertwined with that person as well.
What I’m trying to say: (in theory)business decision making should not be based on emotion. But many personal decisions SHOULD be based on emotion.
I’ve been thinking about this theory all day, and my mind started to wander tonight watching “deal or no deal.” So now I have a question: when do you think it is time to take the “deal”? I know you can calculate the odds, etc, but when I heard the contestant tonight saying “I had a $ in mind that I wanted to leave with” the whole ‘fallacy’ notion struck me again. When would you walk away with the money?
This sounds like my remote control truck problem ! I love the truck I have, with the paint I painstakingly applied to the body, the little “hop-ups” I’ve added to it. But I NEVER use it ! It collects dust on my desk. But, if I bought a remote control truck magazine, I’d probably spend another $100 on it by the end of the month !
If anyone wants to recoup some buyer’s remorse investment, here’s an idea: start some forum or club for “World of Warcraft” widows; people whose partners are so engrossed in World of Warcraft that they have turned into “my spouse, the computer extension.”
I visited some friends up in summer and all their boyfriends or husbands had become World of Warcraft addicts. I said, “You guys should start a club to complain about how your boyfriends are playing WoW. You could hold club meetings while they’re playing.” And they said, “I think every woman in America would join that.” Ha!
And, to JD:
It is totally great and exemplary when you know your limits, financially and personally. Sunk-cost fallacy ties into a lot of emotions people have, and that can be a good way to get yourself out of something that just isn’t what you need at the moment. If you’re changing because you don’t want to waste money, or you change for a personal reason and your money habits change, too, it’s good either way. But I think the sunk-cost fallacy adds a new perspective to thing.
About three years ago I knew it was time for me to quit smoking. I finally had the gumption and determination to do it.
Of course, if you quit, you throw away the cigarettes you’re not going to smoke anymore. I had an almost-full pack and throwing that away was no problem. Four bucks, no big deal. In fact I felt kind of proud I wasted that money, because throwing that pack away was a symbolic gesture of “I don’t need you anymore!”
Back then, American Spirit would send you a free sample carton of cigarettes. The second day of quitting was driving me bonkers. That day, in the mail, came the package of cigarettes I’d forgot I’d sent out for months ago. And they included an extra carton, too. Twenty packs of cigarettes!
I hadn’t even paid for the things, but I had such a hard time not keeping and using them. They were free! That was like $100 of cigarettes I was “wasting” if I tossed them.
I thought about selling them to some smoker or another I knew, or even just giving them away. But I was quitting because I knew how terrible and addictive the things were. I felt it would be hypocritical just to keep someone else’s addiction going.
So I couldn’t sell them, give them away, or above all, smoke them. Throwing them away was painfully difficult. It was like throwing away a free hundred dollar bill that came in the mail. It was for the best, but it was hard, even though I hadn’t spent anything on them and I was saving money in the future (a lot of money) by not having to smoke anymore. Sometimes sunk costs come for free, I guess…
I got addicted during my college days in StarCraft. It only stopped when my desktop pc finally gave up after spending more than 6 hours everynight on it. Yeah, money wasted goes to electricity, lost some opportunity cost as the time could have used for making web projects during college and earned money from it.
Which is why younger adults were more likely to commit to a situation if they had already invested money into it, and that older adults showed a more balanced fiscal perspective of the same situation.
“Just being able to sell your stuff for example, means 10 minutes spent afk flying to the AH, then 10 mins back to where you were. That’s a simple example, and it only gets worse as you level.”
Answer = Mail all your stuff to your level 1 alt & let him Auction House it, then you don’t have to waste more time flying your main toon all about. The stuff you mail your alts is received immediately. You used to have to wait an hour but they fixed that thankfully.
I have a hard time overcoming the sunk cost of my WoW habit not for the money, but for the time I’ve sunk into the game. I know it should work out the same logically, but I have a really hard time letting go of my dumb little fake characters that I have spent so many hours of my life on…that is much more difficult to let go of than the money for me.
WoW is probably my favorite game, ever.. I quit WoW after getting a job. Now I spend too much time doing things related to my job. =(
You can meet lots of interesting people in a game like WoW, and you can certainly make friends playing the game. Just gotta remember, you still have responsibilities to take care of and friends who you could meet up with a short phone call.
I am just giggling reading both the article and the posts. WoW is a game that my boyfriend has played on and off since it came out, more so on than off! I am amazed about the amount of time that is wasted on this game. There have been times where he has played the game constantly for days and days. It’s interesting as well to see that as we get out of the college phase and moving on with life, the game still is very important to him. In case you aren’t aware, there are blogs and threads on WoW much like there are for personal finance and any other hobby you can think of.
Just interesting to hear the other opinions on both the game, and idea of sunk-cost, as there are hobbies I have that are the same (Although I say not to the same extent 🙂 )
The conversation we have had to have over the game is what is a fair amount to play while still having time for grad classes, and our life outside of the apartment 🙂 I have come to understand that this is a hobby for him and a way to unwind, but totally understand the problem that this game can cause both in relationships and productivity in general.
As you’ve done in areas, why not get your wife to assist you in enjoying WoW in moderation (which as you say, can be a great thing). Set up the parental controls on WoW and limit yourself to an hour a day. Get Kris to set the password on the controls. I bet you never ask her for it, and you’ll get enjoyment out of the game without any danger of it becoming a compulsion. You can enjoy the rest of that six month subscription without it becoming a burden.
Oh boy, have I been down this road! Mine was with a sell-at-home cosmetic company. From the cost of catalogs, my start up kit, samples, items that I ordered that the customer changed their mind about, time, gas toting items to and fro, I lost a LOT of money. It was hard to give up, since I had spent so much money to get started, and I REALLY wanted it to work out. I’m glad I finally accepted the truth- most of those companies make their profit from signing up new reps, and selling their catalogs.
I haven’t read all the other posts so I don’t know if this has been brought up.
the idea of throwing money out just because we’ve put some money in something which comes up even in money games, namely: poker.
One of the first rules to be applied in poker is: if your hand is crap, and you know your beat, no matter how much money you’ve invested in the pot, it is useless to try to scare your opponent by throwing money at the pot. What is lost is lost, why make your situation worse?
The probability of your hand getting better is small, and you’re just making somebody else wealthier…
@JD:
I don’t think people are missing the point about sunk-cost. You just picked a topic that was close to home for many people, and everyone likes arguing a little bit. The point of time and money being already spent came across strong, just the reference itself was stronger.
If you had wrote about poker like the comment by Shanel Yang, I would have been writing back the same thing. Three years invested and about $2000 in personal buy ins got me 2 years of tuition, but drove me away from cards forever (can’t play for fun anymore, so I don’t play at all).
That’s exactly the kind of distinction I was making in The Completely Consumed Increment. Your money is only gone for the CCI part of your purchase. For the part of the purchase that was not CCI– the actual market value of an item– your money is simply wearing a different suit.
This is probably an ignorant question,but why wouldn’t you get a pro-rated refund for the time left on the WOW account? Woudln’t you just lose 1 months worth? I got a refund from City of Heroes when I dropped that.
I’ve not posted a comment before, but love your site and refer everyone I know to it! Great job! Thank you for your contributions!
Regarding your WOW account – if you’re unable to get a refund, as Pat suggests, perhaps you could put your “account” up for sale on eBay or Craigs List? Someone might be VERY interested in picking up your character – and hard work invested – for a fraction of the joining fee – and you can recoup some of the cost without having the temptation of logging back on…
I spent 2.5 yrs playing WoW and loved it so much I had to quit cold turkey; I couldn’t stop myself from playing it 6-8 hours a day. I ignored my kids, ignored my husband, my house was a mess, I didn’t want to do anything but play that computer. It was kind of disturbing. (But I still miss it, especially in times of stress.)
I think a lot of the sunk cost is in the endgame. You can casually level the toon anytime you want, but once you get into the endgame, it’s all about the time you spend raiding. You do it all the time but you never have as many epics as the next player — you feel like you have to spend *more* time raiding in order to get the items you want, but then you go to the next dungeon or they put up a new patch and suddenly all your stuff is “worthless” and you suddenly have to raid for weeks on end again.
I remember my guild spent months and months on Blackwing Lair and then … Blizz let everyone level to 70 and our stuff (which was the best in game) was not even as good as the greens you got on your 61 quests. Bleah.
That said … night elf hunters rule!!! Wooooooo!!!!!! *jumps backwards a lot*
I do not even know what you are talking about- and I am glad. I do not even buy magazine subscriptions- – much less game subscriptions. I think our lawn is sunk money- I wish I had the nerve to let it all go to weeds(we would cut them really!) and not keep trying to get grass to grow. I am afraid our neighbors would go after us like the villagers after Frankenstein. Our next house(5 years into retirement- 7 years from now) will not have a lawn (or not one we have to care for)
I really appreciate the idea that we have to think what things are worth to us now. If I can hold that in mind while sorting, that will really help. I didn’t know the term “sunk costs” but have bought into it too much, hence the overweight house.
I wish the people advocating that you sell your account on eBay would stop doing so. It’s against Blizzard’s Terms of Service, which you agreed to when you signed up, and by selling or buying your account you contribute to degrading the game experience for those who still play.
A large part of the game is cooperative and social; players group with others and need to rely on those others on a regular basis. The levelling process is designed to teach a new player the ins and outs of their character, not just hand them a levelled character they don’t know how to handle.
The person who buys your account has already proven (as will have you) that they don’t care about following rules. They probably also won’t care about anything but their own gain in anything else, either — hardly a gift to the other, legitimate players who then have the bad luck to encounter your replacement. It’s like spitting in the pot of soup just because you, personally, decided not to have another bowl.
I suppose you could petition them for a refund and see if it works.
If you buy a 3 month subscription on Jan 1st, and you cancel on Feb 1st, you can still play the game until March 31st. You just cancel the automatic recurring subscription, so you can still play until your time block runs out.
My personal sunk cost fallacy/buyers remorse item is my car. I bought a new Nissan 350Z last summer, somewhat on a whim. I also have an older Corolla, so it’s not like I need the 350Z. My problem is deciding whether or not keeping the 350Z is worth it. It’s an extra $550 payment a month I could have in my pocket, but at the same time, I do enjoy driving it when I take it out for a spin. The sunk cost is just one of the many factors that goes into weighing my decision to keep it or sell it and lose money to depreciation. This whole conversation definitely gives me something to consider.
Here’s some good financial advice, never play a MMORPG with a monthly subscription. Those things are so addictive they will eat up every other aspect of you life. Either that or you’ll have to quit playing them altogether which also means you’ve wasted your money. Its a lesson I learned the hard way.
Frankly, I find that advice to be appalling and disrespectful. Just because some people are unable to control themselves does not mean that it’s a waste.
I view my MMORPG subscription as something of a lightning rod to avoid other spending. My wife and I used to drop $20 every single weekend going out to see movies. Combine that with going out to dinner almost every time (anywhere from another $20-$40), and we were probably spending an easy $200-$300 a month in that form of entertainment. Now, we eat out less, cook at home more, and hang out in WoW for awhile when we can. We’re not only eating better, we’re spending less.
Because we have WoW in our lives, we don’t partake in a lot of *other* expensive hobbies like movies or DVDs or heck, even other games all that much. I estimate that my spending is way down, thanks to WoW. We pay $30/mo for two accounts, and it’s a great way to get a lot of entertainment for a relatively low price point.
Like all things, moderation is key. Sure, people get hooked on it, but at least it’s a more easily controlled “addiction”. It’s not like trying to quit smoking or a drug or something (although I’m sure there are some people who think it feels like that).
As many have said, I think that financially, MMORPGs (and World of Warcraft, in particular) are damn frugal. For $15 a month, I could meet all my entertainment needs. During the month of August, my spending dropped sharply, and I’m certain it’s because WoW was sucking up my time.
However, there are other costs associated with the games, at least for those who cannot control ourselves. These other costs are the problem.
[quote]I feel like today I failed as a writer! 🙂
I don’t think I made it clear what the sunk-cost fallacy is. People seem to be equating “sunk cost” with “waste of money”, and while there’s an element of that here, they’re not the same thing.
Even something good can have a sunk cost. A sunk cost is just anything you’ve already spent. It’s not necessarily good or bad – it just is. The sunk-cost fallacy is believing you should spend more because you’ve already spent some. That’s what I was trying to write about.
Alas, I may have to tackle this topic again in the future…[/quote]
i feel this was directed at me, as i suppose in my previous post i took offense to your problem with WoW though i should not have.
for YOU it was definitely sunk, you only played and continued to play and pay because you had already paid so much and invested so much time into it. sometimes i can feel that way about the game, but like i said i would rather stay in and play something than go out…but then again im no good at budgeting which is why i subscribe to your blogs!
You paid for a 6-month subscription, even knowing how addictive WoW is. There must have been a reason you did that. You could have just paid for the monthly and canceled it after one month. I’ve done it several times. I play for a couple months, then get busy and cancel my membership. Reactivate it when my schedule is slower, play for one month, cancel again. It’s a great game and you’ll never lose your character. I agree it can be very addictive, but there are other ways to combat that. Set a timer, only play it after you’ve ran your mile, etc. Anyway. Hope you work it out!
Jocelyn wrote: You paid for a 6-month subscription, even knowing how addictive WoW is.
Yeah. Dumb, huh? I knew it was foolish at the time, but I couldn’t make myself pay for just one month. “I can save by doing six!” I thought. HAHAHAHAHA.
J.D.–I’ve done the same type of thing, and more than once. I would join Weight Watcher’s and buy the multi-week plan because that was the best deal. However, as you can guess, I would only go for a short while, so in effect the times I did go ended up costing way more per visit than the usual “pay as you go” method. Weight Watcher’s can be a great weight loss method, but it’s just not a plan that works for me.
It’s smart of you to bail out now. Some things we can just discipline ourselves on. We all have them.
Like JD says, the other costs are the problems. MMORPGs REQUIRE a HUGE investment in time. While you’re not playing all your friends are getting ahead of you and there is a lot of peer pressure to keep playing. If you’re not willing to sacrifice your real life on the alter of WoW (or FFXI or others) then its best to avoid them. I guarantee that anyone who gets into this game will spend less, eat less, sleep less, and socialize (outside of the game) less. If you think that’s a good thing, that’s your decision.
Sorry, but your guarantee is worthless. Let’s break it down.
I do spend less, and that’s great. My quality of life isn’t suffering, and if anything, has improved, because I’m not throwing away my money at theaters and dining out like I used to.
I don’t eat less. I eat better. That’s a great improvement. I can even say I’ve lost 25 pounds.
Sleep less? No. I sleep just as much as I always have. Perhaps there is the occasional night where I stay up, but I only do it when I know that I can sleep in a little the next day.
Socialize less? Quite the contrary. I still get together with friends just as much as I used to. If anything, my wife has actually become more social thanks to WoW’s influence, and we get together with friends more frequently than before. We’re even flying out to California for BlizzCon next month (which is a big cost, but one we’ve been saving for and are using as our vacation this year) where we’ll be meeting some friends in person for the first time, and meeting up with others we’ve known for years who happen to share our hobby.
If you want to advance really fast, sure, they require massive amounts of time. However, WoW is easily the most casual-friendly MMO on the market today, which attributes to its success. All of my friends hit level 70 (current cap) three or four months before I did. I eventually made it up there and have a decked-out character now, which I did bit by bit over time. It’s very easy to get on for an hour or two and feel a sense of progress and accomplishment.
I’ve never let my real life suffer because of an MMO. That being said, I realize many people have, and that it can be a serious problem for them. If you don’t have the willpower to sustain balance, then perhaps you shouldn’t dabble in it, but there are many people out there just like myself, that can partake of it in a healthy fashion.
partgypsy, we gave a rescue dog. It has cost us lots of money in thyroid meds, weight control and as an older dog a special diet. But being dog lovers we realize taking a dog is for the life of the dog. The devotion and love the dog shows is beyond any money that we spend.
However, I do sympathize. I had a problem with Doom, Doom 2, Diablo 2, Civilization 2, and Call of Duty.
My wife and kids cured me of my old video game habits. I resisted but finally came to the conclusion that it wasn’t good for me and my family…plus I just don’t have the time anymore.
As an occasional indulgence in moderation, …sure…but do not be mastered by it.
And it’s all about paying the fee monthly rather than thinking you’ll save money buying 6-12 month increments. Means I can quit anytime and still be out less than it costs to go to a movie with friends. I’m glad someone else thinks there’s valid financial lessons in video games!
Excellent article, great explanation of the sunk-cost-fallacy, sorry to see your post get derailed into a WoW discussion. 🙂
I don’t want to take things further off track, but I just wanted to point out some wonderful irony: when reading your blog through google reader, Google decided that your post would be the *perfect* spot to place an add for a wow gold sellering company. 🙂
I’ve declined to start playing WoW because of just this problem. Many friends have tried to get me to play; one even used the argument, “But we live so far away and this is the only chance we’d get to talk to one another!”
Sorry, dude. Me and WoW is like an alcoholic with booze. He can’t have just one drink, and I can’t play for just one hour. I like you and all, and I wish we talked more, but I just can’t do it.
I just play a completely paid for Age of Empires II game and whomp on the computer when I feel like vegging out for a while. Not quite the “challenge” of the more modern games, but completely free and no additional monetary cost.
Of course the time spent still costs, but that is a whole other issue.
Being OCD is really the root issue on the latter…. 🙂
This is really a common trap for most people. If we look at it from another angle, for example, you spend money buying a book. If the book turn out to be not interesting, we tend to finish reading it too. But those ebook that you might have downloaded some where, which is free will forever sit in your hard disk without being opened after many years.
Even when one is aware of the trap of sunken cost, one falls into it now and then, right? This is just how humans are – not perfect, and certainly not rational. But in a way the $100 you spent on the marathon which you did not end up running, was not a total waste of money. It may have contributed to you getting into running in the first place and to you staying with it. You also drew a lesson from this episode. All this may not be worth $100 though.
By the way, I signed up too late for a marathon this spring. It was booked up by the time I decided to run it. But no harm done. I ran Boston two weeks before the one I missed. And I have another one coming up next Sunday, for which I signed up 6 weeks before the event and the day before the price would have increased.
Nice example. I had a similar situation with a knee injury a few years back.
One additional worry about such an injury are the nagging aches and pains that come with not adequately rehabilitating an injury like this. It sucks when you lose money, but when you consider the long term implications, I think you made the right choice.
Great post. I can think of something else. It’s like you bought a stock and then it tanked. However, your inner mind has hard time letting it go. So you keep buying and buying thinking you can bring down the average cost. And then one day you find out that the company declared bankruptcy. This happens a lot to new investors. I made this mistake once in my life too.
Cheers,
A Dawn Journal http://www.adawnjournal.com
But it’s not necessarily a sunk cost. (Sorry) You’re more physically fit than you might have been had you not had that goal and pressed toward it. You just got something different for your $100 than you thought you would when you spent it.
Same for the $80 on the games. You got your $80-worth in the few days that you played, not in the six months. Cost you more per game, but cost is cost.
In the end, money spent is money spent, and you never know what you’ll get for it until you’ve got it. Spending money is always an investment in the future – you buy something to get a certain use out of it. That doesn’t mean reality is going to meet your expectations. But if you never had expectations, you would never get anything at all.
JD, I was hoping to run into you on marathon day, but I, too, am home on the couch! A bad case of tendonitis in my foot (sustained during Hood to Coast) put me out of training for long enough that the marathon was no longer feasible. I hadn’t been training as diligently as I would have liked, so it was probably for the best.
Still, I’ll admit to feeling wickedly glad that it’s raining today (for the first time in the marathon’s 38-year history)!
Paying for a marathon is tricky. You really have no choice but to pay up front. But so many things can go wrong to prevent you from running. Endurance events are unique in that such a disproportionate amount of training goes into just one event.
Wouldn’t it be great if you could pay after the race? I think people would be more likely to listen to their bodies if they hadn’t already shelled out the money.
“What’s important are future expenses and future happiness. To the extent that we can focus on the future instead of the past, the better off we’ll be financially (and mentally).”
Great post, but the above statement is a complete reversal of the truth, as the future is only a thought form, a complete illusion. Yes, you of course plan for it, but the only thing that is real is the present moment. And it’s so much more healthy to focus on and take responsibility for what is primary and real instead of a secondary mental abstraction that may or may not arrive … and when it does arrive comes as the present moment. 🙂
I don’t agree with Dave at all. This is a personal finance site. It is about future plans. To dismiss any type of planning as “mental abstraction” is ridiculous, and to only focus on the present is really nothing short of hedonism.
Hi – on the subject of the marathon, normally the best way to approach it is to break it down into smaller steps. In other words, don’t enter (and pay for) a marathon yet. Choose a local 10K and commit to that, then once you have comfortably completed that, consider a half-marathon and then you can more confidently try for a full marathon.
I’ve just completed a 10K today in fact (first one in 10 years) and now I am happy with that, I can start to plan first for another 10K in the spring, then a half marathon in mid to late summer and finally if everything goes well, the full marathon in the autumn.
As Jess’s anecdote indicates, running is NOT for everyone. I see this type of story over and over. People get this idea of a “marathon” and then they start training and they quickly get an injury. There was even a reality show about people doing just this on PBS or something where a few of them got injuries as well – and they continued to believe in the dream of a marathon and continued training while sustaining further injuries.
How this related to sunk costs metaphorically is that you can have a sunk cost related to a dream also. Maybe a better dream would be to be a power walker – it’s very low impact and probably healthier for you anyway. Running has a dream factor associated with it. That’s why politicians (esp. Presidents) are always jogging for photo-ops. The truth is its a dream that most people can’t achieve b/c our bodies simply aren’t designed for running. Walking on the other hand – well, you don’t even have to consult your doctor is you want to start a distance walking program – enough said.
Running is over-rated and bad for your joints. If you run and your body hurts, esp. your knees, then it isn’t for you and there’s no shame in that. You’re just like 75% of the population.
Our financial woes are frequently based on unrealistic dreams of grandeur.
JD,
Congratulations on taking action to improve your health. Financial considerations aside, making the mental commitment of time and energy is a fantastic, huge step.
Adam Steer, Momentum Wellness says05 October 2008 at 11:50
Great post J.D. And it touches on an unfortunately common theme in today’s fitness culture. Too often, we relegate health to a subordinate role while we pursue fitness, performance or physique.
In a world where we “want it all and we want it now,” it can be so tempting to take the path that seems the most expedient. The funny thing is, when you put health first you end up meeting your other goals more quickly anyway. When you give yourself time to adapt gradually to new stress, when you consciously engage in compensatory exercise to ensure that your physical development remains balanced, when you view recovery as an active and important part of your training, you end up on the straight path to your goals.
You may be able to drive faster on the other path, but it is riddled with twists, turns and pit-stops while you battle over-reaching, injury and less than ideal physical adaptation. Going balls to the walls and playing the “no pain, no gain” game may seem like it takes us more quickly towards our goals, but it plays right into the sunk cost fallacy. Even when we know deep down that we need a day of lighter recovery and compensatory training, we have the tendency to want to not “lose out” on the momentum we’ve built in previous training.
This inner dialogue may sound familiar: “I’ve built my benchpress up to 200 pounds by training it three days a week, I’m not going to miss a session now!” However, our hypothetical fitness enthusiast has been stuck on 200 pounds for 6 months and has an achy shoulder every time he comes home from the gym. But, he perceives that he has SUNK COST in the bench press and is therefore unwilling to revise his training plan.
I see this all the time at the gym. And clients are often amazed at how much progress they make when I take them off of their sacred cow exercises. In fact, when they go back to them, after having not done them for a while, they usual improve their numbers!
Sorry for the long-winded comment. I think your decision to put your health before your performance goal was very wise indeed. And it is a great idea to adapt the idea of sunk cost to exercise J.D. I think I might steal the idea for a post of my own. 🙂
I think the point is that plans are not a savior. The human brain is horrible at planning more than a couple of days in the future, because we tend to take the current situation and apply it to the future (which is of course ridiculous). Plan, sure; but it’s more important to plan to change your plans in the future.
Advanced Marathoning by Pete Pfitzinger & Scott Douglas was my husband’s nightly bedside reading as he trained for his first marathon. Has an excellent 24 week workout schedule. Worth reading through to see if you would want to commit to a marathon. (I looked and decided then I would remain a casual 5k person.)
I’m glad for this reminder. We live in the country and back in January sunk a lot of money into a satellite for internet, instead of the free dial up that we had. The satellite is slower, moderately, than dial up, so we’ve toughed it out. But, recently due to family expansion we needed to buy a new car. With the extra expenses of the new car, we’ve been looking for ways to cut our costs and have tossed around the idea of getting rid of the satellite internet since it costs $80 (and cost $400 to set up), but we keep rationalizing the $80 with the $400.
Now, I’m thinking that we need to revisit the subject. It’s making sense to cut our losses now, instead of struggling through the next few years paying for a mistake that we’ve already made.
A little off topic here, but I agree with Matt.
It’s always a bit ironic that when people try to become healthier, they turn to running marathons. While it’s certainly better than a sedentary lifestyle, joints and tendons are destroyed by the constant pounding they have to absorb during extensive running sessions. Another side effect is a chronically elevated cortisol level which accelerates aging and shrinks muscles. Just look at long time marathon runners.
Shorter, more intensive workouts like lifting weights or interval training are much healthier in my opinion. And they’re more efficient, too, which means you spend less time doing them with equal results in regards to your fitness level.
one thing we’ve learned in recent years is to take injuries seriously and lay off when it hurts. i learned fairly early, but my husband took a long time to realize his body wasn’t indestructible.
it’s expensive to not be in good health, both financially and emotionally.
I think that the reason it’s hard to follow you sunk-cost posts is that what you have spent is money, but what you are trying not to spend is time or effort.
I agree with Diatryma (19). It seems Gwen’s example (16) is a great example of the sunk cost fallacy. You feel like you need to keep paying the $80 a month because you paid $400 up front.
Another example would be a cell phone plan. I had a friend who wouldn’t cancel his plan even though he couldn’t get a signal at home because he would have had to pay $200 to cancel the plan early. Instead he was paying $60 a month for a plan that didn’t meet his needs for the 20 months left on his contract. Perhaps it’s not exactly a sunk cost (as he didn’t pay it yet), but his anticipation of that penalty was what kept him paying money for a cell phone that didn’t work.
I have a friend that will always finish a hamburger because she “paid good money for it.” While I agree, I would rather leave without a stomach ache. So, I offer this option: is the $5 worth feeling full? If so, buy it. If it is not worth it (therefore making her think she has to eat it all to be worth it) walk away.
I find it a little easier to see how ridiculous the sunk-cost fallacy is if you look at it from a business perspective:
Let’s say you are a widget company. You’ve just built a brand new widget factory, at a cost of $100,000.
Now you start building widgets with your factory. But wait! You made a serious miscalculation! Between paying your workers and running the machines, building a single widget costs $2. And now you discover that people don’t really want them–you can only sell them at $1.50 apiece.
Well dang it, you already spent $100,000, right? That’s a lot of money compared to the cost of building a single widget. You might as well keep the factory running, since you already spent so much.
No! You are losing money on every single additional widget you build! The more you build, the more money you will lose, onward into infinity.
The only course of action you can reasonably take is to shut down the factory and stop losing money. You cut your losses. Trying to justify the amount you spent on the factory by continuing to lose money would be crazy. And it’d probably get you fired by your stockholders.
It’s not always so straightforward in real life (i.e. your computer game example, where you were losing time rather than money). But the principle is the same: if continuing on the same course of action will cause you to continually lose [time, money, health, whatever], stop doing it.
CreditMattersBlog.com says05 October 2008 at 15:08
J.D., no point in throwing good money after bad, eh? I call it cutting my losses. You see this in the stock market all the time. Instead of throwing in the towel on a bad investment, people throw more money at the problem — getting even more entrenched in the position.
At some point it simply makes more sense to walk away and move ahead.
Great examples! I especially like the satellite example and the widget example. Both are exactly cases of sunk costs, and much more clear-cut than the two I’ve tried to share. But believe me! Attempting to pursue a marathon just because I’d paid for it would very much have been engaging in this fallacy.
I just did a regatta this weekend that I probably shouldn’t have, medically speaking. Wasn’t really about the (heftyish) entry fee I had already paid, though, since it was a charity event and the money went to a good cause. Just about having fun, which I did. But I’ll try to lay off for awhile now.
As for me, I had over the past 3 years taken a lot of insurance policies. After discovering about personal finance through this blog and other blogs, I came to the realization that I was throwing away a lot of money. This year I did not renew many of my policies. I have instead invested the same money in mutual funds which I began to invest in this year. Sunk cost falacy overcome in my case.
So have you been on your bike at all since July? Cycling is low impact and has a relatively low risk of overuse injuries (assuming a sane schedule and properly fitted bike), and the weather is gorgeous now for some short and long rides.
RenaissanceTrophyWife says05 October 2008 at 23:10
Cheers to you for listening to your body and making your health a priority. A lot of patients I’ve treated for sports injuries don’t necessarily view their health as a long-term investment, and push to “recover” to less than full capacity in order to compete in an event. Several years later, they’re having surgery in the prime of their life and aren’t able to tolerate sustained physical activity at their previous level of athleticism.
Smart decision on your part– I wish other people would take a step back to reevaluate and adjust their goals as you have. Good luck with your training!
Here is my sunken cost, clothes in my closet that were the greatest fad, greatest deal that I never wear, except I paid “good” money for them so I can’t part with them!
They take up my limited storage space and are no value to me because I don’t wear them, I just keep thinking what I paid for them and have a hard time getting rid of them.
If I keep them they are a constant reminder of how I wasted my money, so why don’t I just donate them to someone who can use them and wear them. What makes us think that we can not part with something because of what we paid for it or it is brand new?
By finally donating these items I find joy in giving them to someone else who actually needs them and will use them. I also let go of the fact I spent good money on them, but it wasn’t a complete waste if someone else can use them.
I will be wiser next time to think through my purchases a little bit more by asking myself do I really need this?
My sister totally neglected her body training for the marathon. She got sick and instead of resting, kept training, and stayed sick for months. After the marathon, she went straight to the medical tent and our friends literally carried her home. So no, don’t feel bad about missing the marathon.
On a positive note, my sister taught me that if you buy a steak, you could eat the whole thing, eat half of it, or throw it at someone’s head. Everyone thinks you are paying for the first option but it’s only wasted money if you feel forced to do something you don’t want to do with it – like stuff it into your overflowing stomach. You pay for the option of running the marathon but what you do with that option is up to you. Whateve ryou choose, it won’t help you get your money back (unless you win the marathon). Just another way to look at sunk-cost.
It’s hard for a person to admit that a cost is really sunk..
Once they’ve invested a substantial amount into something, be it $, time, emotions, etc. a person feels that they must continue on because if not they’ve wasted all their investments, and therefore they still look at the invested as investments and not as they really are, sunk costs.
I just registered for my first marathon. It’s not until April, but I decided to register now because a) it fills up fairly early and b) I’m much less likely to back out if I’ve already paid for it. I’ve done several half marathons in the past and will be doing a 15-mile trail race later this month, so this seemed like the natural next step. I’m excited about it!
I admire your willingness to be realistic, because I can relate to not doing so.
Luckily though, my sunk cost back then (May 2007) was only $14 for an 8K race! I have since ran a 10K successfully and have had ample time to prepare for my half. (That’s coming up this weekend!)
Anyway, I admire your tenacity! And thanks for this site.
I enjoy your posts; your blog is one of my favorite financial sites. One comment: you use the phrase “a couple times” and “a couple months”. This is poor grammar. It is supposed to be a couple OF times or a couple OF months. I thought you would like to know since you want to be a professional writer.
Sunday, I ran the Portland marathon, which was significantly easier then my first marathon. Only real difficult section was the St John’s Bridge.
Why don’t you progress with races rather than trying to go from couch to marathon. I think couch to 5K is a better approach. As your endurance builds your can run longer races; 10k and halfs.
In your situation, I probably would have gone ahead and walked it. Walking for 6 or 7 hours in the rain is good exercise. 😉 Dude, you missed getting your finisher shirt out of the deal!
While I understand what you are trying to say about sunk costs, if you are set on doing a marathon at some point, isn’t there an advantage to making use of the asset you already have, rather than repurchase another one next year?
I have heard movie tickets used as an example – if you have purchased a non-refundable movie ticket, it shouldnt influence your decision on whether to go to the movie or not. However, you would have to weigh up, if you plan to see it at some point and dont go today you would have to repurchase, thus incurring additional future costs…
Great blog, JD – one of my writing interns just sent me over a blog about sunk cost (after I loaned her my signed copy of Tom’s book) so it was funny to see them both in your post.
The thing about sunk-cost is that sometimes, it works in our favor and so it is hard to be as careful with it as we should be. Or rather, because we don’t always evaluate the past clearly, what we think is a sunk cost may not be.
Take marriage as a classic example. We know that couples that have been through hard times together and survived them tend to be able to use that shared experience to stay together later on. After a bad fight with your wife, you could say “Man, this is terrible, I’m married to someone I hate, I should cut my losses.” Fortunately, sunk cost swoops in to remind you that you’ve already sunk a bunch into your relationship, and it’d be a shame to lose all that effort by leaving now. And when you’ve calmed down, that sunk cost will have kept you in a marriage that probably isn’t such a bad one.
So the real question becomes knowing when sunk costs are hurting you and when they are keeping you in something that you’ll be sad to lose. You figure out how to know that, you let me know. *grins*
Hi JD, this is just what I was looking for to kick-start a convo with mi esposo. My personal example of a sunk cost: We already own a timeshare (excellent value, we love it, the big money was “sunk” all right but will pay off for decades in high-value vacations). Last year I bought in to a points system with a different “vacation ownership” company. The program doesn’t work as described and we haven’t used it at all. I’m going to “sell” i.e. get out of it. We did get two nice free two-night stays at linked-in resorts, but the money I put down is gone, baby, gone. Doesn’t mean I should keep paying the monthly to keep the points – if I can’t use ’em like I want ’em, that “sunk cost” just gets bigger. So all y’all gamers out there … um … obsess much?? … try not to assume that an article that mentions WoW is *about* WoW, mmmkay?
Did you not take out travel insurance, or does it not work the same way in the US? Certainly for the UK it will reimburse you for travel costs if you’re called for jury service.
I know travel insurance is a tricky one for some people and there’s the saying “Never insure for affordable losses”. Would be interested in your thoughts – maybe for future posts!
I’m never been a fan of travel insurance. Kris likes it, so we get it for our long trips together, but we’ve never ever used it. Maybe I should take a closer look at it?
To be honest if it was just for cancellation, I probably wouldn’t be so bothered about travel insurance either. My biggest fear when travelling is an accident that would land me in hospital = many £££ in medical bills. That’s simply not an affordable cost for me, and as I like to be quite active the chance of accident or injury is perhaps increased.
I’d be very happy if I never have to claim on travel insurance in my entire life, but don’t begrudge paying for it when an entirely possible accident would bankrupt me.
The cover for cancellation, lost baggage, personal liability and so on are all just welcome extras!
I’m the same way! I get travel insurance for the health coverage — even if I’m only going to the U.S. for a day. (Imagine what a car accident could do!)
One thing to watch is the loopholes though. If I remember correctly, most policies don’t cover acts of war, civil unrest, terrorism or pre-existing conditions (like if you bought travel insurance when there’s a travel warning for that country or a hurricane warning, etc.) Most companies also won’t cover you if something happens while you’re intoxicated, but most people don’t know that!
A “cancel for any reason” policy is also more expensive than ones with more conditions.
Travel insurance for medical coverage is something people from Britain usually get because their health at home is covered through a national health care system that only works when they’re in the country.
In the US, health insurance is through private companies and generally (if you have a decent plan) you will be covered even when you are traveling. You may have to pay out of pocket in a foreign country and then submit bills for reimbursement, for instance.
I notice this is a big difference between me and my British friends. For Americans, there are a lot fewer reasons to get travel insurance–mostly to cover costs of having to change air tickets, etc. but it may not be worth it for such small things like that.
Sorry about this, JD. Just one quick question though – did you try calling the travel agent and/or airline directly? I don’t know if it will help, but it’s worth a shot.
We had a similar situation recently. The cost of the ticket was $1600+, which to me is a lot to just let go. It was booked through Orbitz. We thought it was a non-refundable ticket. But I called Orbitz anyway. The first agent was not very helpful. Instead of trying to reason with her, I just hung up and called again. The second agent was awesome! She dug through the terms and found a clause that if the ticket holder cannot travel to do a medical condition that can be supported by a doctor’s letter the ticket can be (partially) refunded. We faxed the doctor’s letter. There was a $250 penalty, but Orbitz worked with the airline to get even that refunded (we have received an email from the airlines that the full amount of the ticket will be applied back to the card, but it will take up to 2 billing cycles to show up….).
Since this post is about ‘sunk costs’, here’s my theory on sunk costs – “It is not a ‘sunk cost’ until you give up on it”. Sometimes, if the cost is low, and the time spent on trying to recover it is not worth it, I just let it go. At other times (like this one), if the cost is big, I try my best to recover as much of it as I can, so the “sunk” part stays small (In this case, I was able to make the “sunk” part 0 – my husband had actually given up and would have taken the $1600 hit)
I forgot to mention – we didn’t have any travelers insurance either. Just keep calling until you find one agent/representative that can sympathize with your situation, and you may be able to recover at least some of the cost.
I would like to weigh in on travel insurance. I realize it’s a personal choice, but we never buy it any more and as we travel frequently we have now saved the equivalent cost of a very expensive trip….. as it ain’t cheap.
Our medical insurance would reimburse us for any related expenses so that is not a factor.
And we always joke that if we are in a bad accident right before a cruise we’d rather recuperate on ship board than at home in bed.
This may well be a US/UK difference. Does the health cover you need to buy anyway typically cover you outside the US also? If so, I can understand why travel insurance isn’t such a priority.
I must admit I’ve made more or less the same decision having travelled in Europe without insurance as that’s covered under EHIC (https://www.ehic.org.uk/Internet/home.do) Anywhere outside Europe though, no way.
Travel insurance is worth it (in my opinion) in two situations:
1) medical costs in a foreign country – not an issues if you have other insurance. I wouldn’t include EHIC in this unless I’d checked carefully what it covered in my destination country (it varies)
2) repatriation of you or your remains
Both situations are rare but potentially astronomically expensive. I had a friend (from the UK) fall ill in the Netherlands with chicken pox. Minor illness, needing next to no treatment, but because he was infectious, he couldn’t fly charter, and no hotel would take him. It cost thousands to medi-vac him home. Without insurance, he could have been in deep.
Like all insurance, the risk you take is that you will have to cover the cost if something happens. It’s a trade-off. I like the security. I can understand if others are prepared to take the risk, but they should also be prepared to take the hit.
I’d say it worked out in your favor. London’s on fire (literally and figuratively) right now, you know; probably not the best place for a vacation at the moment, unless you want to Get Rich Quickly by looting electronics stores with the teenagers.
Hey, when my American boyfriend came to visit in December, I took him to see the sights- the students being kettled were in Westminster just across the river from the aquarium! He got his photo taken with a riot cop, and we played a game to see who could get a shot of Big Ben with 3 or more helicopters in the shot.
I like to think he saw a true representation of an angry little island demonstrating their democratic right to protest.
But yeah, you’re right. Now is not a good time to go wander round London unless you’re a photojournalist. Most of the places hit are just the dumps, but you wouldn’t be able to move freely or go to Camden or chill out where you wanted to.
We’re leaving for London in one week, the first part of a very expensive trip in preparation for a year. It’s set in stone.
I just found out about the rioting/looting this morning and joked with my husband that we might come home with an extra DVR.
But seriously, that is a week away and I don’t consider Great Britain a war zone and my feelings about travel have always been that if you can’t roll with the punches then you ought not to travel. There are constant surprises in life.
That being said, I hope peace has broken out by next Wednesday.
You’ll be fine. Things, as usual, are being massively overblown by the media. The majority of the country is fine, people are getting about their lives with business as usual.
My town is less than 15miles from Ealing, which had some bad stuff go down. We also have a large population of the kind of people being blamed for the riots. Total damage? Starbucks had a brick thrown at the window.
Travel is about adventure, and I think you’ve got the right attitude 🙂
You know what? I’m glad you’re delaying this. Mostly because that’s what’s right for you, but also because now is really not the time to be a tourist in London, and I wouldn’t want you to get caught up in everything that’s going on there on top of what’s going on at home.
I’ve spend the last 24 hours regularly checking on my friends by social network, and was up until late last night with a friend who was staying with me on the way to London. Her hotel was a bit too close to some of the trouble for comfort, and the car park didn’t look particularly secure. Amazingly, she was able to cancel it without penalty, and we rebooked a room in a safer area with a more secure car park, and for less than her original room!
If anyone reading this is in London, stay safe. Others, please spare a thought / prayer for both those whose lives and livelihoods are being destroyed by the rioting, and for those who feel so dispossessed that they see rioting and destruction as a solution to their problems.
I’m an avid reader of your blog! One of the few that I keep reading!
I agree with your definition of sunken costs, but I think that what you are missing are the opportunity costs.
From what I read you will be going back to Europe sooner or later, which means you’ll have to spend those 900$ again (more or less) on your trip there.
So, you basically postponed a thing you will do in the future at the expense of 900$.
So, in my humble perspective, you “lost” 900$ to face your other personal aspects of your life.
Having this said, I personally believe that family comes first, so I think I would do the same. But the flight ticket money would be a though thing to go over 😉
Thanks for clarifying this! I knew the fact that he would eventually be taking this trip had to factor in somehow, but I didn’t think of opportunity costs. I guess in this specific scenario, the $900 is a sunk cost, but in the grand scheme of things, it’s more complicated than that.
JD, if you bought the tickets with a credit card, check to see if the credit card company can take care of it. American Express in particular is great about that. One big pro of credit cards!
I was thinking about this and it’s really hard to figure. Given the length of the trip it’s likely if JD goes at a different time, e.g. next year, it will take the place of some other trip he might have taken. That will push the next trip out and the one after that etc until eventually there is some trip he doesn’t go on because he is no longer traveling for whatever reason. (Certainly once he eventually dies he will stop traveling 🙂 So not going is, in effect, skipping a trip, even if it’s not this particular trip he skips.
SB(One Cent At A Time) says09 August 2011 at 04:40
JD now a days few of the costs being mentioned in GRS is way beyond imagination and still being called as cheap or frugal cost.
You say $900 for one way ticket to London in cheap. I guess this is not business class ticket, in that case its a still for $900,
If its not business or first class, then one ticket to London shouldn’t have costed you that much.
Don’t you use comparison fare tools like Orbitz, Kayak priceline etc?
After reading your post I gave a search on orbitz, Cheapest NYC to London ticket one way for 31 Aug is $446 + tax.
Any way every body’s concept of ‘cheap’ is different. I do believe whatever happens, happens for good. Your trip cancellation is for your own good. Better luck for Latin america and Antarctica trips.
SB, JD lives in Portland . . . on the other side of the country from NYC. Flying to England from the West Coast is expensive, and JD’s ticket sounds like a decent price to me.
Of course I’m using these tools, but I wasn’t looking for fares from NYC on August 31st. On July 4th, I was looking for tickets from Indianapolis on August 8th. (I also looked at fares from Portland.) I spent two hours trying to find a good deal on a ticket. Nearly all of them were $1400. As I recall, there were a couple at $1200. I only found one below $1000, and that’s the one I bought.
Airfares fluctuate all the time, and for a variety of reasons. Don’t assume that just because a flight to London from your hometown today is cheap means that the same was true for me when I booked my ticket. I’m shopping around. I promise!
This is a GREAT article. It explains Sunk Costs perfectly, something I’ve tried to explain to my girlfriend but haven’t been able to do. I’ll definitely be forwarding the article along to her.
Sunk costs are a concept that few people understand. And there are two types – money and time. I see the latter all the time with bad relationships. People (esp women) figure they’v spent 2 years, don’t want to start over at 31, etc, but it’s irrelevant. If it’s not going to work out, you’ll just end up wasting more time later. Or when people say things like, “I can’t go back to school. I’ll be 37 when I get out!” Well, you’re going to turn 37 anyway, God willing, so you might as well turn 37 with your degree! With respect to money, the old adage sums it up best: don’t throw good money after bad.
Thank you! I needed to read that. I’m wrestling with returning to school, and I really will be 37 when I’m done and that’s been driving me crazy. But I’ll be 37 in 3 years anyway, so why not? Don’t know why I’ve not thought about it that way before. 🙂
Being 37 is actually quite relevant to that decision (even if the speaker in your story doesn’t realize it). The older you are when you get a degree, the less time you have earning money with said degree. Would you advise a 53 year old to go to college for a degree, when they would graduate at 57 and have only 10 years to earn it back? The could spend those 4 years working instead, and invest the money they would have spent on the degree, and at 67 end up with more money than if they went back to school. At 37 there may still be time for a decent ROI but it’s certainly worth considering the alternatives.
Good post. It sounds like you made the right call.
But I think this isn’t really the definition of sunk cost as you still intend to go on this trip and will have to buy that ticket again. A good example of sunk cost is seeing a bad movie in the theater – the money’s already gone so is your time better spent elsewhere?
Here the question really is whether staying home now is worth the price of a future plane ticket or the price of never taking this trip. For you it sounds like it is.
I used to travel regularly for work and figured it was cheaper to always book the non-refundable train tickets to save money. I knew I’d probably waste a ticket once and a while, so the cost was built into my budget. I still saved a lot of money overall.
$900 is a lot of money for some people to lose, but if you’re a frequent traveller I think it helps to budget for mishaps too. 🙂
Excellent point. All the money saved over the years NOT buying the “cancellable” tickets has probably more than covered this one $900 ticket.
More to the point, the attitude is a good one. Don’t insure things that really don’t need insuring. Good grief.
I’m trying not to think about the $900. When I think about it, it makes me antsy. That’s a lot of money to lose. But it seemed like the smart choice at the time. And, to be honest, I’d probably make the same choice today.
Perhaps you can use this non-travel time to find $900 worth of Stuff to sell to make up for the expense!
It’s a bummer but it sounds like it was the right call. If you had gone on the trip a big chunk of your brain would have been preoccupied with stuff going on at home.
Just think about the money you are saving – food, hotels, gear, gifts while traveling would have probably equaled at least $900 when all was said and done.
And you probably would have been distracted and not fully enjoying it the whole time you were there.
Considering sunk costs as valueless is a bit of a fallacy. Saying that “sunk costs shouldn’t be considered when making a decision,” may make you feel better about it (not that you should feel bad – it sounds like you made the best of a bad situation), but at the end sunk costs *do* have a value. That value is an opportunity cost.
To use the same example, now, if you still want to travel to London, you have to:
* Carve out another slice of your life for the trip
* Buy another ticket
* Re-plan and re-book reservations, accommodations, transport, yadda yadda yadda
These all take extra time and money.
It is true that the $900 was already spent – there is no changing that – but what the VALUE of that sunk cost amounted to was the *FUTURE* opportunity cost of a potential replacement (which I can’t say what it would be. Perhaps $900, perhaps less), or the lost benefit of going (in the event that elect to not replace it).
Once again, it sounds like you made a good choice, but don’t falsely attribute what you made of your circumstances to sunk costs being valueless.
To further illustrate my point, you say “[i]n fact, it’s when we assign values to sunk costs that we make poor decisions,” but I believe you’re simply applying selection bias – you aren’t taking into account all of the *GOOD* decisions you make with your sunk costs, because, well, that’s easy to forget. It’s the bad ones that stand out.
People don’t have a predilection for valuing sunk costs because we are superstitious or foolish – valuing sunk costs may bite us, but doing so benefits us on the bias. That is to say, peoples that rely on their past decisions have tended (in general) to fare pretty well, whereas societies that constantly evaluate their current and future decisions in a path-independent manner *don’t last long* (admittedly, this is perhaps a bit “post hoc, ergo propter hoc” of me, but really, if you throw out the baby every time the bathwater needs changing, then there are no more babies, amirite?).
No, sunk costs have no value by definition. However, a corollary of the definition is that whatever you’ve sunk your money into is effectively free.
So J.D. currently has a choice between a free flight now, when it’s no longer convenient, or paying for a later flight once things have calmed down. That free flight is mighty tempting, but sunk costs are still sunk.
I think you may be confusing “having no value” with “having no value for decision making.” I could find no definitive reference that said sunk costs had no value (if you could supply one, I would appreciate it) – in fact, almost every definition referred to them as an “asset”, which by definition *has value*. Amusingly, the highest ranked result I found (in a few minutes of googling) claiming that sunk costs have no value was this very article.
The real issue with sunk costs, and the sunk cost fallacy, is that people disproportionately weigh past decisions when they evaluate present and future choices. This is to be avoided, as it statistically leads you to make poor choices. However, the fact of the world is that you *have* made those choices – your current world is in fact a *result* of you having made those choices – and so they influence future costs, which are what you have to weigh. This is, of course, hard to do, so people fall back on their sunk costs (because that is known, and easy).
That $900 ticket has value. That value is real (to provide an example that is more direct: in a world where tickets were transferable, he could even liquidate the ticket to realize that value). He just can’t use the fact that he spent $900 on a plane ticket in an argument about whether he should take that trip or not. Although you have to use the facts of the world and your future costs to make that decision, that doesn’t mean sunk costs are valueless.
I like the way you put this re: lost cost of a future replacement. My boyfriend and I have discussed this and your point is the one I always try to make (but have failed). For example, he says there is doesn’t matter if you accidentally leave a takeout container with leftovers at a restaurant because it is a sunk cost. I say that it does matter because now you’ll have to find and pay for something else to eat for a meal in the future, so you’re losing out on some money (which you term the cost of a future replacement).
Thanks, Nate. Your points are good. I like the differentiation between “no value” and “no value for decision making”. The latter is what I’m trying to get at.
I’m not sure that’s it either. It isn’t that it has *no value* but simply that people attribute the face value. A simplistic example of this might be a savings bond. It has a face value, but that isn’t it’s true value. Many people would look at it and think “Deciding to stay home will cost me $900.” which isn’t true. But deciding to stay home will only cost you nothing in the event that you have no need to replace what you are walking away from. In this case, since you plan to go in the future, isn’t so.
Therefore the *cost* of walking away from your ticket isn’t the face value of $900, but the future replacement value which could be significantly more or less than $900.
I agree. This is my issue when people imply that a sunk cost has no value (either monetarily or for a decision). If you will spend money in the future (travel to London) because you don’t now, you have to factor that additional cost that you wouldn’t pay if you went now. Sunk cost doesn’t mean that it’s irrelevant.
As much as I love to travel, I understand when you have to stay home and take care of family stuff instead.
Not to pry, but has your mom had a tox report done? From her symptoms, she sounds like she’s being poisoned by something at her house that’s causing her memory to go (i.e. she gets better when she’s away)
Almost all of us can point to a place in time where we kept walking even though we knew we should turn around.
Not only are sunk costs something that are hard for us to think about rationally, there is also definite tendency to stick with decisions already made regardless of new information.
I wonder how many have stood at the alter and said, “I do” even though the knew they didn’t.
Congratulations on making a reasoned decision against the odds.
Ha. The 100,000 BA miles are in-process. On July 4th, when I booked the ticket, I didn’t have any of them. Now I have 50,000 of them. If I understand the terms of the deal correctly, I should have the full 100,000 in about a month. BA is running a deal right now where they’re offering half “price” fares when you use miles, so it’s tempting to book a flight with my miles. We’ll see…
Perdona pero asà suena raro. No se dice “me gusta esto mucho”, se dirÃa “esto me gusta mucho” o “me gusta mucho esto”, si es que usas el pronombre. “Mucho” es adverbio de “me gusta”, no de “esto”. Pero el pronombre ni siquiera es necesario en este caso. “Me gusta mucho” basta y sobra, porque JD viene de decir que esta aprendiendo español, y se sobreentiende que a ello se refiere al decir “me gusta”.
For those who didn’t get that: “me gusta esto mucho” is an odd construction. “Mucho” is the adverb for “me gusta,” therefore it should be uttered next to the verb it modifies rather than the pronoun (“esto”). Moreover, the pronoun in unnecessary in this case, as the verb already indicates the third person. It’s like saying “I like it, this”. You don’t need the “this,” we already know that “it” is what you like.
My gringo friends: I’ll teach you, if the money is good. 😉
that “missing” english verb would be the functional equivalent of gustar. “like” is something you do, “gustar” is something that is done to you.
you don’t say: “i disgust margarine,” you say “margarine disgusts me”, right? if the verb “gust” existed you wouldn’t say “i gust pizza”, you’d say “pizza gusts me”. you see? gustar is like that.
me gusta la pizza
me disgusta el tofú
so instead of thinking “like=gustar” think “[dis]gust=[dis]gustar”. ha ha, yes, it’s a made up word but it should clarify how the verb works to the english-speaking mind.
we have both gustar and disgustar. you only have disgust. our “disgustar” also means to annoy, make angry, etc. so when someone is “disgustado” it usually means they are mad at someone, rather than grossed out.
all of these explanations may help you clarify some things (or give you a migraine), but language works mostly at a subconscious level. while explanations help relieve anxiety, the only way to learn is to practice in the right context (with people who speak correctly rather than reinforce mistakes).
Yes. You conjugate gustar based on the thing you are liking, as opposed to based on the person who is doing the liking. That’s why you throw the pronoun on the beginning, where you don’t with a lot of other verbs. “Me gustan las mujeres = I like the women.” You used the plural third person form of gustar and the plural of woman.
Okay, you guys are cracking me up with the Spanish grammar lessons. Thanks! 🙂
Actually, though, I understand the subject/object stuff with gustar. The thing that’s tripping me up is leaving the subject off. I understand that it’s me gusta, but I don’t know why I’m not using a subject. Nerdo seems to be saying that if I leave the subject off, it’s an implied “it”. How to express the subject in the sentence “I like it” or “It pleases me” is what I’m after. I know how to say A mi me gustan libros. (Although, who knows, maybe I have that sentence wrong too!)
Right now, I’m working on past tense. I’ve actually been reading the first chapter of Harry Potter, and it’s fun. I get most of it. And I’m learning new words — like mientras (as/while) and la lechuza (owl).
Leaving the subject off is a frequent thing in Spanish, since the conjugation (declension) already implies subject. You learn this in elementary school as sujeto tácito.
You say “Me llamo JD” not “Yo me llamo JD”
You say “Estamos reunidos” (we are gathered) not “Nosotros estamos reunidos”.
You say “Vine, vÃ, y vencÃ.” not “Yo vine, yo vÃ, y yo vencÔ
You ask “¿Quieres bailar?” not “¿Tú quieres bailar?”
These sentences have a subject and a verb even if the subject is not spelled out. It’s tácito.
You don’t have to say “la lechuza” or substitute for a pronoun every time. As long as you are on the subject of la lechuza, you can just imply the subject. Once you introduce another subject though, you have to clarify who did what to whom. In the example above, if you were to say “lo depositó en su nido” without naming the lechuza, it would be grammatically confusing if it was the mouse of the owl that carried out the action.
In English you always need the noun or pronoun because the verb conjugation lacks specificity.
I think it’s quite impressive that you and Kris are so comfortable with each other that you were able to plan a trip like this. In reading about it, it kind of sounds like a vacation; I realize it will likely net you many articles and good connections for later, making it business-like. Still, I could see how that could be a tense situation with you leaving and her feeling regret of not going as well (I’d feel regret…they places you list sound awesome!).
As for your decision, it was a good example of sunk cost, but was just a rational decision as well. And the decision of a provider, a la Jimmy Stewart in It’s A Wonderful Life. I’m sure your family, friends and spouse all love you for it (as do readers! I like your articles best of the writers here). Just be sure to get back out there before the ol’ Savings and Loan gets too be too much 😉
I’m just wondering: Does the question of whether or not you still plan to go to London someday affect whether or not this is a sunk cost?
By that I mean, if you decide not to go, and let this ticket go to waste, but then nothing else in your life changes, then sure, it’s a sunk cost.
But if you still want to go to London, then by NOT going right now, you’re basically setting yourself up for an additional expense at some point down the road. That additional expense could be avoided if you take the trip now (since you’ll have already been to London, and thus won’t need to go again). So taking the trip now will save you $900 in the future, but skipping the trip will cost you $900 more someday.
Does that additional cost enter into the equation at all? Does that change whether or not it is a sunk cost?
JD, thanks for an well-reasoned insight into this type of decision.
But one thing jumped out at me – when you said Kris’ discomfort with you traveling solo “may sound unimportant, but it isn’t.” I’m surprised you felt the need to qualify that; why WOULDN’T your wife’s feelings about your extended travel be important? If anything, I think they need to be considered just as seriously as your commitment to your mom during this difficult time. I’m glad you are taking her concerns seriously; no need to explain that decision!
Karen, it kind of blows my mind that we’re this deep into the comments before ANYONE mentioned this little throwaway line. “It may sound unimportant”… to WHO? Someone without a spouse whose opinion and respect actually mean something to them? Sheesh.
Hm. This was a massive failure at me attempting to make light of the conversation from June. Back then, GRS readers gave me a lot of crap because they thought I wasn’t taking Kris’s wishes into account, that I was treating her as if she weren’t important. This isn’t (and wasn’t the case). So here I was trying to make a little joke. I didn’t do a very good job. 🙁
He said it MIGHT SEEM unimportant, not that it WAS unimportant – in fact, his sentence implies exactly the opposite.
JD, from that sentence I got:
1) It was important to YOU even if not to others, and
2) in the past, you (and the many readers who didn’t join in our discussion in the comments) may not have thought much about discussing your wife’s feelings, but now you have.
Personally, I felt proud of you for mentioning it, and I think the commenters above need to TAKE A BREATH.
Actually Kris’s nervousness about JD traveling alone do sound like the least important of the reasons to cancel the trip. I don’t mean that one shouldn’t take one’s spouse’s feeling into account of course! Just that the time for her to object was before the ticket was booked.
In a hypothetical world that was the only reason for canceling, the best response might be to seek ways to reassure her/make her more comfortable with the idea, not cancel the trip.
Dr. Jason Cabler (@DrCabler) says09 August 2011 at 06:15
Well, sometimes you gotta do what you gotta do. Some things are just more important than others and have to get done. Might be good to get a refundable or transferable ticket next time though.
Actually, my current plan for my time in Latin America is to spend time at a language school. I hear they’re a great way to learn. (I also hear, though, that you can get just as much out of going out and talking to the natives in whichever town you visit.)
I’m a beginner, but I’m loving the process so far.
Don’t go to a language school when you’re visiting a country in which that language is spoken! Spend your time trying to understand – and communicate with – those around you instead. You’ll learn faster and have more fun.
The best language schools have immersion course which are designed to REPLICATE the experience of being in a foreign country. If you’re already there, don’t hole yourself up with others who can’t speak the language either! You can do that anywhere!
I agree with your choice, but would have tried to negotiate with the airline over the ticket. Sometimes you can negotiate a non-transferable ticket and either book a new flight or pay to get it transferable and then sell it on a travel website. Of course, that’s not always the case but simply trying to negotiate makes you feel better about losing the money.
I did try to get something for the ticket, but no go. I think if I’d had more time to work on it, I could have managed to get a credit or something. But as it is, we made the decision so late that I only had time to hound the folks at the airport, and they really didn’t have any power to do anything.
I probably would have been sure Kris was 100% on board before I bought a ticket, but this is a sensative topic. I applaud you delaying until she’s ready for it, but be prepared for her not to be ready for you travelling by yourself for extended periods indefinitely too!
I am surprised with the EXTREME market drop in the last week that no posts have been made about it. Despite this being a plan ahead blog, I’m turning to you guys in the PF blog-o-sphere for a “hold the course, don’t panic” post and not finding it. All my index funds are low MER, regular deposit dealies, and I’m not selling, but it really sucks watching thousands of dollars of net worth vanish every day with nothing to show for it.
Thanks, you (and Leah below) make me feel better. It helps to hear it from people.
I have anywhere from 20 to 30 years before retirement (I’m 35) so I know to expect these kind of fluctuations. It’s just I was hoping March 2009 was the last such ‘correction’ I would see for a good decade or so. Foolish me!
I’m buying every time I get paid into my DC plan then another $5k on January 1st as soon as I’m allowed to dump more in my TFSA (Roth IRA in Canada).
Please keep us updated on your mother’s situation JD. I know it’s not readily PF related but many of us will be dealing with ageing parents and there isn’t nearly as much knowledge/sharing out there about this thing as there should be.
I read a few others but mostly GRS and SD daily, they both have all ignored it. Which…seeing as the S&P 500 closed up nearly 5% today…maybe they are on to something. A few weeks of gains and we’ll be almost back to were we started in 2011.
I bought this week. Definitely hold the course and don’t panic. Two options:
1. The stock market will go back up. You’ll recover. You will look great if you invest more when it’s low.
2. The economy will collapse and cash will be worthless. Doesn’t matter how much you saved/didn’t lose by selling now.
I suppose there are some middle ground options wherein the stock market dithers around. But, ultimately, it will either go one way or the other. As long as you have a decent chunk of time until retirement, I wouldn’t worry about the market too much. Heck, my dad has an ideal 5 years until retirement, and he’s 90% stocks or so. He threw it all in when stocks were super low a few years ago, and he’s enjoyed the great gains. He figures 5 more years will give him time for a nice rebound.
Breathe! It may not be a blip, but it’s not the end of the world either. Just try to remember you haven’t “lost” anything – unless you panic and sell low.
Sorry for the tangent, but how was your one way ticket $900? Even flying from Portland, that is way too expensive. I’m seeing tickets for $400-500 from Portland to London.
Last year I flew roundtrip from Houston-> Barcelona, Rome->Houston for $800.
Kristin, where are you seeing $400 tickets from Portland to London? The cheapest fare I see right now is $922. I’d love to know how you guys are finding these cheap flights.
This is highly dependent on when you fly and when you book. JD was buying a ticket for August during July – peek travel time. The rates you see today are not the rates that were available a month ago.
Came here to say basically that. It depends entirely on when you are booking, and when you are flying. We priced out tickets in I believe February for travel to London from BOSTON for June and the price was just north of $1K per person for coach. Airline pricing is exceedingly strange.
And beware the ticket codes on some of the cheap flight sites–if I had to guess, JD’s ticket was probably one of that category, I don’t know the technical term but it’s sort of a ticket consolidation thing. Those are the tickets that are absolutely non-refundable, no exceptions. They aren’t really being sold by the airlines–I think there was an article on the WSJ Middle Seat blog that went over this in detail. Here’s the explanation for booking codes: http://en.wikipedia.org/wiki/Travel_class#Airline_booking_codes
Note that “Heavily discounted fares, commonly O, T, Q or W, will not permit cabin upgrades, refunds, or reservation changes, may restrict frequent flyer program eligibility, and/or impose other restrictions.”
It depends on the level of risk one is comfortable with–that’s all!
I know (at least in Canada) I can find “cheap fare” for under $500 to Europe. However, the taxes always work out to about another $500 making the total cost closer to $1000.
When people are posting about these cheap fares you are finding, are you including all the final costs?
Depends on when you fly and from where. Flights out of Houston are generally much cheaper than out of Portland for a variety of reasons. Consequently, I looked at flights from Houston to the UK a few months ago and they were all upwards of $1000 for round trip. Not unlikely for a one-way to be high and even that high from Portland. I seriously doubt that JD didn’t do the research, so I’m surprised by all the comments on the flight price. Years ago, I booked a flight from Houston to Ireland for about $850 four months ahead of my travel date. Much to my chagrin, two months later the prices were slashed in half. Airline pricing can be tricky and best price is all kinds of relative.
Oh man, this would kill me, but it sounds like you made the right decision. Is there really no way to change the ticket, even with a fee? A few hundred dollars fee is still cheaper than buying a whole new ticket if you can push it out 6 months or so.
Make this the third time you’ve tried to write about sunk costs and a bunch of people don’t get it and/or quibble about the definition…
I heard about sunk costs a few years ago and once I got it, it really changed my life. I find myself dwelling too much on the past and it was a concept that helped me stop beating myself up for past mistakes and choices and look to the future and what makes sense now.
I enjoyed this post and hope that someone else has a lightbulb moment with this concept as a result.
I also hope that you get your trip at some point in the future when you can truly enjoy it.
RE:“I don’t want to waste it,” I said. “But it’s a sunk cost. It’s not a factor in the decision. That money has already been spent whether I go or not.”–BUT if you go, you’ve only spent (made up number ) $2,000 on the ticket and gotten a trip. If you don’t go now, the trip you take in the future will cost double: the $2,000 you already spent and the $2,000 you’ll have to spend to go. I say go. All those things will not have been resolved before you get back anyway. A copy of a purchased plane ticket will get you out of jury duty and Kris can research the roofers.
lol. I would have said the opposite 🙂 Sometimes financial decisions aren’t about numbers at all. I’ve been on the receiving end of having to handle things while someone else is off “doing their thing”. (It isn’t fun.) True, I do regret some things I’ve given up — but I can live with that decision. I don’t think I could say the same about not being there for someone who needed me.
Loved the note on sunk cost. As that goes, you want to be very careful on choosing the person to install your roof. As you can see by my email address I work for a large roofing company and the biggest issues customers have with their roof relates to how it is installed. Fully checkout your installer and his credentials. Why try to save $200 on something that protects your $200,000 investment?
I rarely fly so if this isn’t possible, I get it. But can’t you sell that ticket at a major discount on Craigslist or something? You’d get at least a few dollars back. Can tickets be transferred in our New World Order post 9.11?
I was wondering the same thing, but there is a note from J.D. in the comments that the ticket was “non-transferable” which I guess means it can’t be re-issued in another person’s name.
The other question I had was whether the ticket could somehow be donated to an organization. But I guess non-transferable means that the airline just gets to pocket the money and resell the seat.
Considering the extra money the airlines are raking in these days by pocketing the FAA fees, too, they should have some good profits this quarter. Quick, buy up some airline stock at a bargain!
Airline tickets can never be transferred from one person to another, even if you buy the most expensive full-fare, fully-refundable ticket available. In fact, there is always a change fee (can be up to $150) imposed for something as simple as a travel agent mistyping the passenger’s name! And you could be denied boarding if your driver’s license says your last name is Smythe but the ticket says Smith, so you’d better get that ticket changed.
Good explanation of sunk costs. The next step would be to think about all the marginal costs… you’re saving X, Y, and Z by not taking the trip (sanity being one of them).
Of course, by taking the trip in the future rather than now, that’s also marginal cost… but you can cross that bridge when/if you come to it.
That is definitely bizarre that you can’t pay a fee to change the ticket… I didn’t know airlines did that! Usually they’re more than happy to let you spend $150 plus the additional cost of the new ticket to make changes on flights that haven’t happened.
I wonder if this is a case in which “just asking” (escalating up to managers) could get you some marginal benefit… Then you’d convert some of that sunk cost to marginal benefit for a future flight.
If you have a visible leak and roofers are that far out I would suggest taking a look yourself to prevent further damage. If you know what to look for there is a very good chance you could find the leak and do a patch job. I am not a roofer, but over the years I have done more than my share of repairs.
Essentially you are looking for any break in the roofing material. It will likely be above, perhaps significantly the location of the leak inside. It might not be quite in line but water usually runs along the rafters, so it should be close. Especially look around protrusions like chimneys as they are often where breaks will occur and they impede water flow resulting in more water coming through holes in those locations.
Since you wouldn’t be looking to make it pretty you can usually patch it together with a bucket of tar or tar with mesh material. The mesh can be hard to find in handyman quantities but you could likely find some by calling a roofer and asking. Ours just handed us some when we asked. It’s messy but isn’t hard at all.
Oh, and make sure your roofer is properly insured. The reason there is a disparity in cost for roofers is often because the insurance is high and the corner cutters go without. If one of the workers falls off your roof and the contractor isn’t properly insured you are opening yourself to much badness.
Thanks for being honest about your life, we go through real situations and it’s helpful to know that GRSbloggers do too! (At least I know I can put you on a pedestal). Also it’s cool that you cared more about your relationship with your wife than an adventure, my husband and I like to call those decisions the hardest easy decisions to make. Adventure is out there!
I fly from Oregon to Heathrow a lot and I can vouch for the fact that $1200 roundtrip is a good average fare in the summer. You can get cheaper tickets, ie $800 roundtrip, but they require crazy things like waiting 12 hours to change planes in a German airport and the like. I needed to buy a one-way ticket for August this year, and the cheapest one-way I could find was $1400. (This was booking in April for an August flight.) So I booked a $1200 round-trip ticket, and I’ll use the unused half in the future. (I’m doing the first return by ship, and then I’ll go back by ship, and fly back.) But my sources tell me that you can inform the airline and just drop the unused half of the ticket. (They also tell me not to simply abandon the ticket once you’ve used the outward flight, as this gets you on the list of suspicious people.) Anyway, just to say that $900 for a PDX-LHR flight in July is a good fare.
Agreed. Definitely Do Not abandon your second journey of a roundtrip ticket to save money instead of buying a one-way without making massive apologies to the airline.
Nonsense. Current events are shocking & depressing, yes, but they are only affecting a tiny area of the UK, mainly in big city suburbs which travellers are unlikely to visit anyway. Whilst not wishing to play down the damage the riots have caused, as usual the media are making things seem worse than they actually are.
If anyone has plans to visit the UK, don’t even think about changing your mind – it’s lovely here. And not even raining too much at the moment either! 😉
Phew, thanks Jim for the assurance. To some of us the show must go on. Will touch down next week and hopefully by then, London would be back to normal.
~Somsiah
p/s Great article on sunk cost, JD, and excellent responses on the said topic well by GRS readers.
Omg THANK YOU. I can’t believe you’re the first person to mention that!!
I couldn’t tell if he meant the Bible or if this was an inside joke or if there really is an unbeatable bestseller on Antarctica, lol, idk like Livingston’s journals or something.
I don’t know what the best-selling book on the continent is at the moment, but we’ll let it be Chris Guillebeau’s book next spring. I’ll settle for second best-selling. Or maybe if we’re there for more than a day, he can have the best-selling book one day, and I can have it the next.
Are you going to post about Antarctica on your travel blog as you plan it? I want to go too! I just got back from Australia which was my 5th continent visited. (Has anyone noticed that almost all the continents start and end with A?)
By definition, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. What JD may or may not spend in the future for the same item (a rescheduled trip to Europe) isn’t relevant today. The cost has already been expended, it cannot be recovered, and whether he will expend additional costs in the future is unknown. That “unknown” cost could, at best, be construed as marginal cost, where marginal cost by definition is the change in total cost that arises when the quantity produced changes by one unit. So, by changing the date and time of travel, additional cost will be incurred. Regardless, the sunk cost is still sunk cost.
Yes, the sunk cost is gone, and you articulated it well. But I think the disagreement stems from the concept of it having no bearing on the discussion. The COST has no bearing, but the VALUE does.
If we instead thought of it as a *free* ticket, say he won it in a raffle or something, I believe it has bearing on the discussion/decision if it is something he would replace in the future. In this context the decision is between using the ticket and paying in convenience now, or paying for a ticket for a convenient trip in the future.
Perhaps I am using the wrong terms, but I think that is the confusion lay people have when trying to talk about sunk costs. The money is gone and should not be associated with the current value (JD’s point), but the costs being sunk also doesn’t mean the item has zero value (which seems to be what JD said). The current value needs to be understood on its own.
So, by removing the expended costs from the equation (which really only serve to complicate the decision making process), you are weighing the value of what you receive from the ticket against the value of family and other obligations. When faced with those choices, irrespective of the sunk costs, JD decided there was greater value in his other obligations.
I think part of the problem is that it can be really hard to figure out the value of something. “How much I paid for it” is a convenient number, and it’s hard to get past the anchoring effect it causes.
I just started reading “I Will Teach You to be Rich” as a personal finance refresher and Ramit mentions that most credit cards already have travel insurance, up to a certain amount. I’ve never had to look into this so I have no clue if this would help you recoup some of that $900 but if you booked with a card, perhaps it’s worth investigating.
Kris must be a saint. If I said my wife’s discomfort at me being away for months “may sound unimportant,” I’d probably have to deal with some medical costs of my own. 🙂
I no sunken costs. I pay the race fee and buy airfare – and get injured, or meet with a family crisis. Choice just have to be made. Most of the time I can recoup a cost of the ticket as a hold for future flight on the same airline with about $150 change fee within a year. I never buy traveler’s insurance because they refund for medical reasons – like hospital or close to it. And I try to look at it from this perspective: money is spent, I can’t go, if I go regardless the circumstances, I will have to spend on car rental, hotel, food, gas…if I stay, I lost ticket cost, but that’s it, paid for in full, lets move on. It is hard, it doesn’t happen too often (every other year), but such is life.
Best to you dealing with what you have at hands.
Sunk costs are sunk costs, but here a couple of ideas:
1) You should be able to get out of this for jury duty. Here’s from Continental Airlines, might apply to others:
Refund Request for Non-refundable Tickets – Unplanned Event
Continental will refund change fees and tickets in certain cases. All requests must be received before the expiration of your ticket and must be accompanied by proper documentation (see below). Once received, if applicable, a refund will be provided to the original form of payment minus a $50 USD processing fee*. This policy applies to the illness or death of the traveler, traveling companion, or immediate family members, as well as customers actively on jury duty at the time of planned travel.
*Except where DOT 14 CFR Part 382 applies
The other thing is a slightly bizarre idea: you could search on Intellius for people with your name who could either:
a) buy your ticket at a discount
b) accept it as a gift so it doesn’t go to waste
(I just did an Intellius search and found 5 people with your initials and last name in Oregon– spooky!). Unless your first name is highly unusual, you should be able to find potential matches.
And since you’re a public figure, the chance to come across as a stalker/scammer is highly reduced.
Just wanted to make a comment about the airline costs. Due to fuel and increased taxes, $900 in Peak Season (N. Hemisphere May – End of August) OW to London sounds extremely cheap (because OW fares are often higher than round-trip fares).
I use Kayak.com to look for most of my flights because they include the taxes in the totals that they show in the results, so you really know what you are going to pay for tickets. If you are on most airline websites, you can see fares for $450 each way but that’s before the taxes…which will take you right up to $900.
JD – good comment on sunk costs, once I understood them, it made sense to ignore them when making decisions. One thing I might check is to see when you rebook your flight, to see if they will allow you to use some portion of the ticket as a credit (usually up to one year). They MIGHT have a $250 change fee to change the date of the ticket…it can’t hurt to check but if you didn’t cancel the flight before it was supposed to take off, I don’t think you’ll be able to get the $$ as a credit. Airlines call this a “no-show” and if an agency doesn’t cancel the booking they can get fined by the carrier. However, if the flight has not yet departed, it would be worth it to cancel the reservation and then see if it could be used later.
I’m a regular GRS reader but I don’t write in much–but I just wanted to say–I am *sure* that you made the right decision on this one. Especially since Kris was uncomfortable with it–that is a hugely important reason! You’ll be happier with yourself in the end when you put family first. Good luck with your roof and with your mom’s situation, too.
The sunk cost principle is really important and is a cornerstone of avoiding common finance mistakes.
However, your example is horrible and views marital advice in terms of financial terms, which….is yucky! I’d suggest that when Kris says “you’ve already bought the ticket” that she may not be talking about the financial aspects of of something akin to protecting an investment (for which the sunk costs argument would be a good response), but is probably talking like a person who cares about you and saying things like “despite all this crap going on, you should still think about your wants and dreams”. I’d suggest saying “thank you for caring so much” and not “let me tell you about sunk costs” 🙂
But…that aside, very good to bring up sunk costs, but I’d go for an example where people pile on more cash to spent cash in an effort to make-better money already “sunk”. Thanks for the great site. Good luck with Kris 🙂
I have been reading all the new comments to your post “A place for Mom” I think a permanent blog is really necessary for this subject. Can you find someone to start one? I am at a loss to figure all this out even though I am more than half way into the whole process. I just hate insurance companies.
Actually going through similar things in our family I have found that there are a lot of resources, but they are hard to find because it is a closed community. You come in not knowing anything and the system is organized in such a way that you need a guide. It is tedious and frustrating and it doesn’t help that you come in stressed and emotional.
It isn’t a perfect system by any means but I feel the need to give credit where it is due.
Thank you for a very interesting concept – I hadn’t come across “sunk cost” before, but I find it a useful idea. It’s gone, so forget it.
Sorry to hear about your Mom, it sounds to me as if you made the right decision to cancel. Also, I’m sure you’ve heard about the riots in London and other main cities. Not the best time to visit. However, I can guarantee there would be no riots on Hadrian’s Wall! (Unless by companies of Roman Soldier ghosts.) But the weather here is going down the tubes as of tomorrow. The Roman Wall is no fun in the rain, but it is definitely worth seeing at some point.
(From a completely biased Northumbrian!)
There was a post a couple of months ago on GRS where JD’s travel idea came up and it came along with the idea of selling the house because the house had issues. In the post, it was decided that JD would travel alone since Kris had a good job and didn’t want to go. I’m paraphrasing here, but most of the comments were not exactly a high-five for J.D.’s decision. I’m sorry that the plane ticket price was lost money but I’m not so sure that the whole idea of travelling was meant to be in the first place. For me, I have learned that everything that I do and decisions that I make affects SOMEONE. It can affect my family, a co-worker, boss or my neighbor. And sometimes, I have to wait for the final answer to reveal itself. Patience really is a virtue.
I hope things go better for you, JD, and things work out for everyone involved.
The concept of Sunk Costs really relates back to the larger concept of “Opportunity Costs.” When ever we make a decision we are, whether conscious or not, weighing the lost opportunities associated with the choice to do or not to do _____. The personal example that JD brings up raises the question of what are the lost opportunities involved if he decides to use his plane ticket or not. One thing to note is that opportunities are not always positive and a lot of the time it is an “opportunity to avoid” something negative. So for example, If JD did decided to go on the UK trip it would mean that he would delay working on his mothers situation (Financial and family consequences) delay getting his roof fixed(risk of future damage), missing a jury summons (Legal risk of not showing up), risk damaging his relationship with Kris (need I say more). A lot of the potential costs do not have a direct dollar value; but how do you put a dollar amount on a relationship?
So in considering the potential costs of going on the trip, vs. the $900 in Sunk Costs it seams a pretty clear cut decision.
Nicky at Not My Mother says09 August 2011 at 17:24
“If I flew to England, I was out the $900. But if I stayed home, I was out the $900 too. This is the purest example of a sunk cost I can imagine!”
Yes, but if you fly to England, you’ve used the ticket, but if you stay and then go later, you will be out a total $1800 because you have to buy another one.
I agree that this is a good example of a sunk cost, and a good example of making decisions based on the real situation, but it’s not accurate to say you’re in the same position whichever choice you make.
I appreciated seeing that you’re taking your wife’s feelings into consideration and stating that they are important. There are many relationships where this doesn’t happen (examples are everywhere) and it’s nice to see examples where it does happen.
I also appreciated your explanation of the sunk cost.
J.D. This is a case were I say hang the 900 bucks. Your Mother needs you, your family needs you and you need to attend to matters of your home. I know you are useing this situation for GRS conversation, but it shouldnt even be up for discusion, stay home and take care of business.
Good post. Something to think about and something that I can extend to stocks, houses, and other assets and purchases.
In the same situation I could see myself making the opposite (and in my opinion wrong) decision. Being miserable and worried about your family wouldn’t have put any value back into that sunk cost.
If I understand correctly, a $900 ticket would have got you to London, but not back.
So using the ticket would automatically incur another cost for a return ticket, at some point.
Granted, if all went well, you could shop around and get the best deal back, perhaps being flexible with departure dates.
But if you go under uncertain circumstances and then end up having to return hastily due to a pre-existing problem flaring up, you would then have to fork out whatever they were asking for a return flight (because of the urgency), so you’d be out of pocket at least another $1000 (or have to throw money at a problem to avoid having to come back home to sort it out). And who’s to say that wouldn’t happen within a few days of your arrival? In which case you’d have “sunk” over $2000, and not seen London/Europe to boot!
Being a smart money person, I am appalled that you did not take out travel insurance. You lost almost $1000 you could have had back in your hand for next time. It was a sunken cost if you had gone, but it would have been value for service in that case. Who reads this blog that can be so cavalier about losing $900 out of debt or not??!!?? It is so worth it to have travel insurance with ridiculous airline ticket costs much less any non-refundable hotel or other travel charges that might be in the trip I can’t take at the last minute. And it does not have to be a family crisis. YOu can get coverage for everything up to and including changing your mind about taking the trip for any reason.
I love your blog, J.D., but, judging from your little snippet of Spanish, you will need more than 8 weeks to prepare for your Latin American trip! Best of luck!
Did you try getting the taxes and fees back? From what I recall, the airline only has rights to the actual fare, but not the taxes and fees associated with your flight. If you don’t fly, you shouldn’t be liable for landing fees, security fees etc. Considering that your ticket was cheap, a good amount of it was probably additional fees. Try googling: Get Tax refunds on cancelled flights from airlines. Good luck.
Sometimes a sunk cost does still figure into the decision. E.g. if you are going to do the activity sooner or later anyways, then the fact you have a nonrefundable ticket for “sooner” can be treated similarly to a discount.
$500 is more than half the price of the ticket, so you were better off “self insuring” (given that there was less than 50% chance of cancellation.)
European and US airlines have a different business model. In Euope you fly what you paid for. That means an inflexible ticket is inflexible. They usually don’t even let you take an earlier flight when you arrive at the airport early. They also don’t upgrade passengers on the basis of empty seats in higher classes, but only when they don’t have enough seats in lower classes.
JD, two remarks regarding BA… BA charges fuel surcharges and taxes in award tickets. This will be several hundred dollars no matter whether you fly First or fourth class (coach). That makes coach redemptions less interesting.
Second, there are some major changes coming this November that might drastically devalue your miles unless you use them to book tickets to Europe. Details are not yet published, but for tickets to South America or Asia you might have too book early.
I remember a study on sunk costs — they interviewed people outside a theatre and asked them if they lost their $20 ticket while in line, would they spend another $20 to replace it? The majority said no. Other patrons were asked a similar question — if they hadn’t yet purchased a $20 ticket, and discovered while in line that they’d lost $20 from their wallet, would they still buy the ticket? Most folks said yes. Two different emotional reactions when presented with essentially the same financial decision.
For me, it depends on whether the sunk cost is a discretionary or necessary thing, and how my budget would be affected — if you absolutely needed to go to the UK, you either use your ticket today or it costs you twice as much to go on a different date. So instead of being a $900 stay versus $900 go decision, it ends up being a $900 go today versus $1,800 go tomorrow. If that’s a budget-breaker you have to go today.
I have played Warcraft for 11 years with a couple of brief (2-3 month) interruptions.
But, realizing that the game is so addictive, I decided to invest on it.
So I bought one hundred shares of Activision / Blizzard back in late 2009 at roughly $11 a share. It is now $64 a share.
That is the positive. The negative is that when I look at time played, I have spent nearly two years online (15,000 hours) that I will never get back. But then again, I had a lot of fun during those 15,000 hours.
There are 283 comments to "The sunk-cost fallacy: Throwing good money after bad".
My expercience is a lot more dramatic. On the day of my first wedding I had a fleeting moment of becoming a run-away bride. The only reason I didn’t leave my x-husband at the alter was the money that I had already put into the wedding. Well, I should have left him at the alter. It cost me a lot of money and stress to be married to a man that didn’t know what it meant to save a penny. He spent every penny we both made and more. I didn’t know that he had borrowed money from my family until after the divorce. This lesson I learned the hard way.
WoW is a perfect example of the sunk-cost fallacy, and one that hits particularly close to home. There’s something disturbingly addictive about MMORPG’s (to me, anyway), and I’ve always stayed away from them as much as I can because I’m not sure if I have the willpower to get out once I truly get in.
J.D, don’t know if you have ever seen http://www.wowdetox.com/. If not, it is well worth a quick browse every now and again. It will put you off of going back to the dark side in no time at all 🙂
Nice, Jonathan. I’d never seen that site before. The second comment on the front page right now has a perfect example of the sunk-cost fallacy:
And Tina, your example is perfect, too. (Though I’m sorry you had to go through it.)
I should have pointed out in the article that salesmen use the sunk-cost fallacy all the time. “You’ve already invested X amount of time or Y amount of money in your Thneed — you should really invest a little more.”
I have had quite the similar experience. I played Diablo 2, another product by Blizzard, which totally took over my life. I wasted a lot of time playing instead of studying. Even though the online play was free, it does mess up many aspects of our lives.
I know there are a number of secondary market websites where you can sell your characters/whatever else you get in that game.
You should check it out…maybe you can get some of your investment back!
i’ve had a world of warcraft account for almost 2 years now.. i don’t know how to feel about it.. it has it’s positives and negatives..
one positive is you save money because you spend most of your time indoors.. it is a great time killer
you already mentioned the negatives (takes over your life, mental and physical health, etc..).. i’ve even heard stories of this game ruining relationships
i rarely play anymore.. but i keep my account on because my brother plays a lot more than i do..
i have a 70 dwarf warrior (alliance).. and another orc warrior (horde) that i’ve yet to level.. i think he’s at 12 right now
i rarely see some of my friends anymore because they are so into this game.. it was fun playing w/ them for a while.. but after a while you just get tired of it.. i have other interests besides playing a game hours in a day
i’m already sitting at a desk 40 hours a week.. i don’t want to be doing that another 20 hours playing warcraft
madden 2009 is my new addiction these days lol.. i’ve played over 100 games online already.. and i’ve only had the game a month =O
I have a completely different experience with World of Warcraft. I downloaded the demo, played it, and liked it… and realized I’d love it as a casual game for a couple hours every other weekend.
I realized I’d never really advance at that rate. Honestly, that doesn’t bother me much, though it would make it hard to group.
I realized I’d be paying the same amount as someone who played 20 or more hours a week.
And I decided to just let the trial expire. Why pay for extra frustration in my life?
that’s the thing w/ warcraft.. that game never stops.. there’s always something you want to improve on.. and it takes time to get there
i know i’m screwed.. because when the expansion comes out.. i’m sure i’ll be playing again lol
WoW is what you make it to be. For awhile when I was between jobs I played a lot. So much that my husband informed me that it was kind of taking over my life more than it should. I listened to him and I stopped playing as much. Now I organize my WoW time around my calendar, instead of the other way around.
However, I must say that I have met some really amazing and fun people on WoW. I’m not a very social person, and this game has made it really fun to talk to people in kind of an anonymous way.
There is a healthy balance, really anything can become an addiction. It is kind of shame that video games gets the brunt of shame, when there are other worse addictions out there.
I love WoW as casual game. 11 € a month for unlimited time has saved me a lot of money by not buying other entertainment just to pass some idle time. Learning to take it in moderation is the important thing.
I was addicted to WoW for quite some time. The first few days I owned it, I played it 14 hours per day. It was ridiculous. I had to learn the hard way to just walk away, even though I was really attached to my character and all the time and energy I put into the game.
Great article.
“remember that your goal is to maximize your wealth and your enjoyment.”
I think that this is a great way to look at things. Playing it out in the WoW example, if you’ve spent $80, and played 80 hours, and enjoyed them, then you’ve spent about a dollar an hour for something you enjoyed. If that enjoyment was worth a dollar an hour, then you’re already ahead.
Looking at the other way, you’re now noticing that other facets of your life are starting to suffer, so in this case, to maximize your enjoyment (of your overall life), then stopping is the right choice no matter how you look at it.
This is a common problem with new Hold ‘Em players. They hate the idea of folding if they’ve already put any money into the pot. The more they put in, the more they hate to fold. Even if their hand gets progressively worse and it becomes increasingly obvious the other side bluffed you into staying in the game in the first place. They just keep hanging onto that slim chance of getting their money back rather than kiss all those chips goodbye for good. For the same reason, even if they have a good hand, they’ll fold if another player tries to make them go all in — even if they would have slowly bet pretty much all of it anyway. That fear of loss is greater than the promise of the win! Craziness!!
Thats exactly where I saw myself going with WoW after only 2 weeks of playing it. It was going to be expensive AND consume mountains of my free time. I ended up selling my game and remaining trial on ebay, only losing like $10 or so. Distractions like this are a terrible thing though, and probably costing even more than the monetary cost to play.
I wasted a good bit of that solid-GPA-building freshman year of college playing Starcraft. I actually ‘infected’ my dorm by introducing it to everyone, and instead of studying we’d play Starcraft. Studying became something that I crammed in, not made time for. And just when we were done playing Starcraft by Christmas time, Broodwar was released during the break and it began all over again for that 2nd semester. In the big picture, if I would have had less Distractions like this, I probably would have been able to get off to a better start in college. A game, which undoubtedly was and is fun to play, pretty much helped to bring out laziness and set an initial tone of mediocrity for my college career. Looking back, it definitely was not worth what I got out of it, which is nothing, and I now always wonder how much better I could have initially done in college without SC, as well with fewer other Distractions (outside of ‘weekend gatherings’, of course) that I had.
World of Warcraft has been a great tool *for* my financial well-being.
WOW is the only game I play now.
Instead of looking at it as a $15 recurring cost, I look at what it’s saving me.
I don’t buy other video games. That’s a savings of $50-$150 per month right there. I only go out to see movies that I really really want to see (saving me $20 a week at least). Same with going out to restaurants.
Sure, there’s something to be said against a life of WOW-inspired hermitage, but financially, it makes a lot of sense 🙂
The same sunk-cost fallacy is what kept me from throwing out the miniatures I commented about in another post here recently.
I had spent so much money, even though it was almost 15 years ago, that I couldn’t justify dumping everything. I think people do this more than they realize.
Right now I’ve got a sunk-cost fallacy issue sitting by the curb in front of my house. We have a paid-for car that we bought early this year for $2000. We just put $800 into repairing it, and now it needs another $400 to get running again. I have a tentative offer from my mechanic to buy it for $450. We could fix and sell it, and make maybe $1500 total (less repairs, net $1100), but more like $1000 ($600).
I’m thinking if he’ll pay to tow it, he can have it for the $450. I don’t think it’s worth my time and money at this point to deal with.
Back some months ago, I saw WoW Detox linked, and it led to me writing up my thoughts on WoW, and the time and money spent on it.
http://www.randomthink.net/blog/2007/11/12/why-i-wont-be-leaving-wow-anytime-soon
Wow, that was longer ago than I thought it was, but anyhow:
I generally agree with the concept of the sunk-cost fallacy, and I can see where it’d go with WoW, but for me and my wife, it’s probably some of the best $30 we spend each month.
In terms of dollars-per-hour, it’s fairly cheap, and the more you play, the more you get out of your money.
Like all things, people need to exercise moderation. As mentioned in the post, we do other things. I don’t think I’ve played more than an hour at a time for a few weeks now. We’ll often plan out a WoW night and play for a few hours then, but those are coming fewer and farther between. Between my jobs and her graduate student work, there isn’t time for it.
With control, it’s a great recreation. It can be done, and my wife and I are living proof of it.
I appreciate that you’re using it for the specific example here, but I’ve also read a lot of stuff that says basically WoW=wasted time and cash, which simply isn’t true as a generalization. It’s cheaper than buying a bunch of DVDs, the time aspect can be controlled, and there’s a myriad of ways to enjoy yourself. My wife and I both have our endgame raiding characters, but we also have our little lowbies to play around with for something different.
The time spent playing together only strengthens our relationship, and so it’s not a waste at all. It’s one of the stronger positive forces in my life right now, and I’d hate for people to think that it’s just a stupid time- and money-sink with it all going to waste.
I’m with you on this one…I had a similar experience with Diablo 2. It was a huge time-sink, and when I was online with friends, I felt obligated to keep playing…I didn’t want to let them down. It ended up leading to a serious discussion with my wife (not the pleasent kind). We worked it out and I walked away.
I think any sort of reality escape can get out of hand, WoW is just really good at it.
Great article!
Thanks for sharing your experience I have never played but there are certain things in my life I can compare this with its nice to realize when you fall you can always get back on track!
We have a similar situation, but with a dog. He is a rescue dog, and have been working with him for 5 months. So far we have purchased licence, crate, dog bed, toys, new fence, dog training classes, vet bills, and lots of time and aggravation, but he is still not meshed with our family. The whole idea is that eventually he will be a good companion animal that we will have for many years, but the payoff right now has only been stress on our marriage. But at the least he is a living creature, not a video game.
I agree that World of Warcraft (and all Blizzard games, to be honest) is a great value financially in terms of getting pleasure for what you spend on it. It’s some of the best cheap fun I’ve ever had in my life.
HOWEVER, it’s not a good value for ME in terms of time, self-esteem, and money I forego by playing. Because it takes a huge amount of my time (because I’m not personally able to exercise restraint), I get less writing done, and less writing means less income.
I wish I were one of those people who could play just a couple hours a week, but I’m not.
Also, I think some of you are missing the point. I’m not arguing that World of Warcraft is a bad thing. I’m using it as an example of me succumbing to the sunk-cost fallacy. If I were to justify my continued playing because (a) I’d already spent money on the next five months and (b) I’d already devoted 80 hours to the game, I’d basically be falling into this trap. What I’m saying is that it’s important for me to cast aside this thinking and make my decision based on the future benefit it would bring me…
This post was intended to be about the sunk-cost fallacy, not about World of Warcraft. 🙂
I’ve heard of a guy going to his lay minister for dating advice (I heard the story through the minister). The guy had been dating a girl for quite some time, so he figured he kind of had to marry her after investing all that in the relationship.
The minister was an economics professor in his day job. He told this guy, straight up, “It’s a sunk cost. Forget it. Move on.”
But it seems like there might be times when we should take sunk costs into account. I can’t think of any examples, though–can anyone else?
I absolutely love this post. It reminds me of working at a dot-com company in the first bubble and as all dot-com stocks started to fall before the collapse everyone would talk about “averaging down”. That is, buying more shares while the price fell to reduce their average price paid per share. But whichever way you cut it, you’re still committing more money to a losing investment, and most of those people ended up “averaging down” in an entirely different way than they’d hoped…
I wish I saw this sooner, but then, I was preoccupied with the Freddie and Fannie takeover….
I had a WOW account. I think I played in moderation (although I use that term loosely), but ultimately canceled it because I didn’t want to pay the monthly fee.
I use to play Diablo 2, Warcraft 3, and Starcraft all the time too. They were more time-sink than money-sinks I think….
I’m now on Team Fortress 2, but again, more of a time-sink. Again, I don’t think I over-do it. Just started playing again last weekend, but only because a friend asked.
I almost fell into the sunk cost fallacy when I bought a sportscar last year. It’s a gorgeous car (Audi TT Special Edition) and I was really in love with it for a number of months. I think I wanted it because I’ve never had a car like that in my life and figured I was successful and deserved it. I can totally afford the car, or even a much more expensive car for that matter. The truth is that it’s just an impractical third car for me and mostly sits in the garage looking pretty. I rarely have a chance to drive it due to the fact that I run a small business that consumes my time and requires the ability to transport tools and pinball machines.
I’ve been going back and forth in my mind over whether I should keep it or just take the depreciation hit now (about 8K!) before it depreciates even further. I’ve decided to sell it. It’s on Craigslist now with a couple of interested parties. If it’s not sold by the end of the month, I’m selling it back to the dealer I purchased it from, taking a somewhat bigger loss, but it will be out of my garage and out of my mind. What I’ve also done was traded in my old 2002 Subaru for a brand new work vehicle, a Honda Element. I love the new vehicle and would rather drive it than the fancy sportscar!
For kicks, heres the car…
http://www.pinballclinic.com/gamepages/AudiTT.htm
Boy I blew it this year, and I mean that. I set us up on a savings plan this year and had it planned out that we would have 10k by the end of the year (I am the only income earner). Excited my hubby and I worked on the plan and saved over 5k. Then summer hit, bam. We blew it… we now have 2k on our CC and have dwindled our savings down to 2.5k.
I suppose I should have paid off all of our debt first instead of building up this large savings account.
Sunk cost fallacy – I am now planning to pay down our debt first. I do not want to sink money again into savings when I have debt that could have been reduced.
#20 partgypsy
We had the same experience with our dog Mulder. Week by week we wanted to take him back to the shelter. On the 4th week or so, I looked at him and felt sorry…then I looked at my husband. He said “ok, let’s do everything we can to make him part of the family”. We never looked back, he is our pride and joy, now almost a year old. It takes work but it is totally worth it. Watch the Dog Whisperer shows on NatGeo and read Cesar Millan’s books. Before you know it he will be an obedient doggie. We also save money on entertainment because we enjoy just hiking with him etc.
Here’s his picture.
http://javafoto.com/wp/?p=18
The irony of all of this is that by quitting and writing about WOW (a very popular and polarizing topic), you may have driven more traffic to your site and thus more income. Chances are if enough people start reading your blog because of this entry, that $80 dollars might be some of the best money you have ever spent.
-ThatGuy
I do not feel this to be a Sunk-cost. Both my fiance and I play WoW and we play together. We think it’s a good social outlet, and nice way to spend some time together. Look at it this way, spend $15.00 a month (30.00 in our case) to be able to enjoy something together on our free time, which would otherwise be spent (and then some)on going out say…for the weekend. Drinks for two? You would spend about that same amount in just one weekend, let alone a whole month.
For us, WoW is helping us stay in and save money, not uselessly spending it.
You could probably sell your WoW account, you know. Especially if you have a 6 month sub on it. It would help recoup those costs…
Ok, I guess in a way you can view this as a form of sunk-cost fallacy, but the other way to view it is perfectly logical. The first hour you play costs you $x. After you’ve paid that $x, the hours you play between then and six months from then are free. *IF* the marginal benefit of each of those hours is greater than zero, then you should play.
I think what you are saying is that the benefit was not > 0 because it was affecting other areas of your life. You are not losing additional money if you don’t continue to play, but I don’t think this is the best case of the fallacy, because marginal benefit over marginal cost increases after the first hour (or first minute, really). If you are risking losing your job because of the game, then that’s probably a greater cost than benefit, eh?
Sunk-cost really is a terrible fallacy, because it is so common and so irrational. So I’m glad to see it mentioned, regardless.
I have to admit, I would have tackled your problem from the other end: by scheduling your playtime, and using the parental controls to enforce them, with your wife to back it up. I’ve found that just the fact of being accountable to someone else for the way I spend my time has a great effect in limiting wasted time, and once you fall into the habit of only playing during your allotted hours, you probably would not have found it that hard to live with the restriction.
I feel like today I failed as a writer! 🙂
I don’t think I made it clear what the sunk-cost fallacy is. People seem to be equating “sunk cost” with “waste of money”, and while there’s an element of that here, they’re not the same thing.
Even something good can have a sunk cost. A sunk cost is just anything you’ve already spent. It’s not necessarily good or bad — it just is. The sunk-cost fallacy is believing you should spend more because you’ve already spent some. That’s what I was trying to write about.
Alas, I may have to tackle this topic again in the future…
I did the same sort of thing (obsessive play) with Dune and then Dune 2000 several years ago but at least it never cost me more money than purchasing the game itself.
Honestly, I’d still play it if the the disk hadn’t gotten so badly scratched that a third of it won’t work (the Atreides levels beyond the first one).
My own personal sunk-cost fallacy is with all you can eat buffets. It’s a great place to bring the kids because there is no wait for the food and it keeps them entertained but I find myself eating way too much trying to get “my money’s worth”.
Yes, Adrienne, that’s a great example! Trying to get your money’s worth at a buffet is engaging in the sunk-cost fallacy… 🙂
J.D. I dont think it was you who are a bad writer, you quoted someone else “The sunk-cost fallacy describes our tendency to throw good money after bad.”
I think that is where we were misinformed…
J.D., a good post, but a bit of nuance is needed. As someone trained in economics, I’ve long known of the sunk-cost fallacy. It’s a real problem and people screw up on it all the time.
But I wouldn’t say one should ignore completely what was paid for something, and just focus on future costs. The difference is between fungible goods and investments.
If you paid 10 bucks for a movie ticket, and you go in and find the movie horribly disgusting and revolting. It’s definitely a mistake, and sunk-cost fallacy, to sit there and say, “but I spent 10 bucks on this movie, so I need to stay”. Money’s gone. Only question now is whether you’d be better off staying or going.
Applied to investments, this gets trickier. Because while it is true that some people could fall into a sunk-cost fallacy that keeps them locked into a bad situation because of what they have already spent (rather than cutting their losses), it is also possible that people might misjudge the question of whether it is time to cut losses. In other words, with investments, the money is not entirely sunk. It calls for judgment and the sunk-cost fallacy is essentially a narrow version of the basic common sense principle of detachment. In this case, detachment from our need to not admit a mistake in past acts.
Here’s an example of sunk cost (from 2 years ago): Paying for a three-month subscription (instead of a one-month subscription) to a personals website, and one week into it meeting the man who I’ll be marrying in a couple months. There was a little more benefit to walking away from the paid subscription in that case, though.
I have pretty mixed feelings about WoW. I’m one of only 3 women who play in my guild; my husband got me into the game because it was causing a lot of trouble in our marriage. Essentially, he brought me down with him so I would stop arguing with him about the time he spent playing.
I now have a fully epic, level 70 hunter. I go on raids that take 3-5 hours at a time. We never go out. We trade time with each other so one can raid and the other watch the kids. We’ve invested so much I have never thought much about quitting the game, or that perhaps I stay because I worked hard for those epic boots.
Reading this post made me think about this. JD, I know you meant for this to be about sunk-cost fallacies, but talking about WoW hits a nerve because of its addictive nature. It took me a year to level a character (some people level to 70 in a month or two) because I played only occasionally, but lately I too have been using WoW to escape some pretty serious problems in my life. On top of the time spent and the cost involved, there is the issue of my husband’s obsession as well.
What would I do if I actually quit the game? Other than the extra $13/month, would I make real friends, in the city where I live, rather than talk to people I don’t really know and have never seen? And what would happen to my marriage? Would it crumble into pieces if my husband and I did not have this one thing in common? To tell the truth, WoW is what we talk about, when we talk.
Your post has given me a lot to think about. This, in effect, is what good writing is about — making people think. So, do not feel like you’ve failed in your writing; you’ve merely pushed a button you probably did not expect to push, and the sunk-cost allegory was lost in the shuffle.
I started playing in Sept 2005, 3 years ago. I made alot of friends in that game while we raided MC/BWL, some of them actually live within a few hours of my house.
I’ve quit the game a few times since then, recently picking it up again. I found the best way to subscribe is to either get a 60 day game card, or just pay for one month with your CC, then after that you immediately go back in and cancel the recurring subscription. You’ll save a few bucks (per month) if you buy the 6 month deal, but I’d rather pay the extra dollar each month. If I only play for 2 months, then i’ve spent $30 rather than wasting 4 months & $60 if I’d bought the 6 month package.
During that month, you’ll know if you want to carry on for another month or if you want to put it on the shelf for a while.
It is a fantastic game for our long cold Canadian winters when we’re cooped up inside most days!
$15/month is cheap entertainment since I don’t have cable/satellite TV, don’t rent movies, don’t go to bars, etc…
I have toons on a PVE server, and recently got a few 70s on PVP servers (ALL Horde toons, NO Alliance!). It’s really cheap, but I love waiting for an Alliance (even if they’re much lower than me) to start fighting some mobs and then gank them. Hee hee, that’s almost worth the $15 each time you do that.
You guys make me feel old. The last Warcraft I played was II. There’s a free turn based game as wesnoth.org — can be somewhat addictive.
How do we go 40 posts without one mention of a nightelf mohawk?
Got me through graduate school, and continues to make it hard to just walk away, although I wasn’t able to get a job in my field and am now in a completely different line of work. Let my professional organization memberships lapse, but I still have a pile of books and old notes. Not about the money, but about the time.
Good thing I saw this post before checking eBay for the new PC game SPORE.
I think many of the comments here speak volumes about why personal finance is so hard for some people.
There’s no reason to avoid World of Warcraft, Diablo, Spore or any other video game. Just use a shred of moderation. Completely removing something from your life is the easy way out of a problem, without actually addressing the cause.
I think relationships can be a good example of a sunk-cost fallacy – how many people continue to stick out a bad situation only because it’s “been so long”?
I am also wondering when you reach that point with investments whose value is dropping. For example, my 401K is going down the drain, but I’m still putting money into it… Do I rebalance? Hold? Fold?
Five years ago, my wife and I built our “dream home” (I have come to hate that expression) in the country. We were able to do this in large part because we have always lived a frugal life as a married couple. For 10 years we worked to eliminate all school debt and the mortgage on our modest townhouse as we planned an ecological country home in which to raise our family.
To make a long story short, the building process blew us out of the water. From the moment we moved into our country house, it was clear we had made the wrong decision. The house was incomplete and the mortgage was 30% higher than we had anticipated.
But what were we to do? We had already sunk so much money into it. We couldn’t just walk away. We were invested, and we needed to finish the house and to show our children that you don’t just walk away from your mistakes. Sunk-cost fallacy written big.
So for the last five years, we did what we always do: budget tightly; garden; work like stink to pay down the mortgage, and do away with almost all non essentials while I worked to complete the house myself. We were paying down our new mortgage, but we weren’t having any fun.
This spring we finally decided to “cut our losses,” and we put our house for sale. Guess what? All summer only four people came out to see our “dream” house. Even though the housing market is still in pretty good shape up here in Ontario, we’re going to get hosed. Now all I can think of is all the smarter things I could have done with my money. Kind of a combo sunk-cost fallacy / buyer’s remorse complex 🙂
All that dreaming, cost, effort, heart ache, and mortgage interest are gone. Intellectually, I know the best perspective is to just walk away from the sunk costs. Emotionally, it’s very painful. Reading everyone else’s stories helps.
Thanks.
This game sounds really really cool. I might get involved in it if I ever have some spare time.
Thanks for the post
In my opinion the main sunk cost in WoW isn’t the subscription you’ve paid for, it’s the stupidly high level of time that you have already invested in your character(s) – the opportunities forgone (like keeping your friends, improving yourself and spending time with your family).
“Enjoyed in moderation, World of Warcraft can be a fantastic pastime.”
I TOTALLY disagree. WoW is an absolutely HORRIBLE game. Terrible. Trust me, I have four 60s and a 70. It’s incredibly fun, but from a game design point of view it’s awful. Just like a slot machine – entertainment, pretty lights and sounds, but in terms of gameplay it gets blown out of the water by pong. The developers didn’t try to make a game, they tried to make an Everquest style virtual world, and added poor gaming elements to it when it sucked. But by far the largest aspect of the ‘gameplay’ is still defined by this stupid virtual world idea which has failed, so to do any gaming in WoW you are crushed by the presence of the virtual world idea. Just being able to sell your stuff for example, means 10 minutes spent afk flying to the AH, then 10 mins back to where you were. That’s a simple example, and it only gets worse as you level. If you want a virtual world play D&D. If you don’t then play TF2. You make it sound like “if only I had the time or could control myself it would be really entertaining and a great thing to do in my spare time…” – don’t think like that! Trust me, the facepalm-rate of WoW increases exponentially the more you play. Be glad you got out when you did. By quitting you have learned WoW’s most valuable lesson and have nothing left to get out of it.
@ Jordan…
You bring up something I’ve thought about a bit in the past – considering sunk costs in decision making rather than trying to look past them.
When should you consider sunk costs? Any time you are not making a business decision. If you are making decisions in your love life or on a personal matter, I feel that you should factor in emotion and pleasure that the person brings into your life – not just how much you’ve spent in the relationship. Since these issues are not business decisions, the sunk cost fallacy doesn’t cleanly apply. Sure, you can analyze how much you’ve spent on someone, but there is an emotional aspect that is intertwined with that person as well.
What I’m trying to say: (in theory)business decision making should not be based on emotion. But many personal decisions SHOULD be based on emotion.
I’ve been thinking about this theory all day, and my mind started to wander tonight watching “deal or no deal.” So now I have a question: when do you think it is time to take the “deal”? I know you can calculate the odds, etc, but when I heard the contestant tonight saying “I had a $ in mind that I wanted to leave with” the whole ‘fallacy’ notion struck me again. When would you walk away with the money?
This sounds like my remote control truck problem ! I love the truck I have, with the paint I painstakingly applied to the body, the little “hop-ups” I’ve added to it. But I NEVER use it ! It collects dust on my desk. But, if I bought a remote control truck magazine, I’d probably spend another $100 on it by the end of the month !
If anyone wants to recoup some buyer’s remorse investment, here’s an idea: start some forum or club for “World of Warcraft” widows; people whose partners are so engrossed in World of Warcraft that they have turned into “my spouse, the computer extension.”
I visited some friends up in summer and all their boyfriends or husbands had become World of Warcraft addicts. I said, “You guys should start a club to complain about how your boyfriends are playing WoW. You could hold club meetings while they’re playing.” And they said, “I think every woman in America would join that.” Ha!
And, to JD:
It is totally great and exemplary when you know your limits, financially and personally. Sunk-cost fallacy ties into a lot of emotions people have, and that can be a good way to get yourself out of something that just isn’t what you need at the moment. If you’re changing because you don’t want to waste money, or you change for a personal reason and your money habits change, too, it’s good either way. But I think the sunk-cost fallacy adds a new perspective to thing.
My personal sunk-cost:
About three years ago I knew it was time for me to quit smoking. I finally had the gumption and determination to do it.
Of course, if you quit, you throw away the cigarettes you’re not going to smoke anymore. I had an almost-full pack and throwing that away was no problem. Four bucks, no big deal. In fact I felt kind of proud I wasted that money, because throwing that pack away was a symbolic gesture of “I don’t need you anymore!”
Back then, American Spirit would send you a free sample carton of cigarettes. The second day of quitting was driving me bonkers. That day, in the mail, came the package of cigarettes I’d forgot I’d sent out for months ago. And they included an extra carton, too. Twenty packs of cigarettes!
I hadn’t even paid for the things, but I had such a hard time not keeping and using them. They were free! That was like $100 of cigarettes I was “wasting” if I tossed them.
I thought about selling them to some smoker or another I knew, or even just giving them away. But I was quitting because I knew how terrible and addictive the things were. I felt it would be hypocritical just to keep someone else’s addiction going.
So I couldn’t sell them, give them away, or above all, smoke them. Throwing them away was painfully difficult. It was like throwing away a free hundred dollar bill that came in the mail. It was for the best, but it was hard, even though I hadn’t spent anything on them and I was saving money in the future (a lot of money) by not having to smoke anymore. Sometimes sunk costs come for free, I guess…
I got addicted during my college days in StarCraft. It only stopped when my desktop pc finally gave up after spending more than 6 hours everynight on it. Yeah, money wasted goes to electricity, lost some opportunity cost as the time could have used for making web projects during college and earned money from it.
Which is why younger adults were more likely to commit to a situation if they had already invested money into it, and that older adults showed a more balanced fiscal perspective of the same situation.
Sam
Fix My Personal Finance
http://fixmypersonalfinance.com/
sunk cost:
4 years done in grad school. what’s one more?
To ^_~ @ Post 51:
“Just being able to sell your stuff for example, means 10 minutes spent afk flying to the AH, then 10 mins back to where you were. That’s a simple example, and it only gets worse as you level.”
Answer = Mail all your stuff to your level 1 alt & let him Auction House it, then you don’t have to waste more time flying your main toon all about. The stuff you mail your alts is received immediately. You used to have to wait an hour but they fixed that thankfully.
I have a hard time overcoming the sunk cost of my WoW habit not for the money, but for the time I’ve sunk into the game. I know it should work out the same logically, but I have a really hard time letting go of my dumb little fake characters that I have spent so many hours of my life on…that is much more difficult to let go of than the money for me.
WoW is probably my favorite game, ever.. I quit WoW after getting a job. Now I spend too much time doing things related to my job. =(
You can meet lots of interesting people in a game like WoW, and you can certainly make friends playing the game. Just gotta remember, you still have responsibilities to take care of and friends who you could meet up with a short phone call.
I am just giggling reading both the article and the posts. WoW is a game that my boyfriend has played on and off since it came out, more so on than off! I am amazed about the amount of time that is wasted on this game. There have been times where he has played the game constantly for days and days. It’s interesting as well to see that as we get out of the college phase and moving on with life, the game still is very important to him. In case you aren’t aware, there are blogs and threads on WoW much like there are for personal finance and any other hobby you can think of.
Just interesting to hear the other opinions on both the game, and idea of sunk-cost, as there are hobbies I have that are the same (Although I say not to the same extent 🙂 )
The conversation we have had to have over the game is what is a fair amount to play while still having time for grad classes, and our life outside of the apartment 🙂 I have come to understand that this is a hobby for him and a way to unwind, but totally understand the problem that this game can cause both in relationships and productivity in general.
A well written article. I have been there and done that many times: the sunk-cost fallacy.
JD,
As you’ve done in areas, why not get your wife to assist you in enjoying WoW in moderation (which as you say, can be a great thing). Set up the parental controls on WoW and limit yourself to an hour a day. Get Kris to set the password on the controls. I bet you never ask her for it, and you’ll get enjoyment out of the game without any danger of it becoming a compulsion. You can enjoy the rest of that six month subscription without it becoming a burden.
Lee.
Oh boy, have I been down this road! Mine was with a sell-at-home cosmetic company. From the cost of catalogs, my start up kit, samples, items that I ordered that the customer changed their mind about, time, gas toting items to and fro, I lost a LOT of money. It was hard to give up, since I had spent so much money to get started, and I REALLY wanted it to work out. I’m glad I finally accepted the truth- most of those companies make their profit from signing up new reps, and selling their catalogs.
I haven’t read all the other posts so I don’t know if this has been brought up.
the idea of throwing money out just because we’ve put some money in something which comes up even in money games, namely: poker.
One of the first rules to be applied in poker is: if your hand is crap, and you know your beat, no matter how much money you’ve invested in the pot, it is useless to try to scare your opponent by throwing money at the pot. What is lost is lost, why make your situation worse?
The probability of your hand getting better is small, and you’re just making somebody else wealthier…
@JD:
I don’t think people are missing the point about sunk-cost. You just picked a topic that was close to home for many people, and everyone likes arguing a little bit. The point of time and money being already spent came across strong, just the reference itself was stronger.
If you had wrote about poker like the comment by Shanel Yang, I would have been writing back the same thing. Three years invested and about $2000 in personal buy ins got me 2 years of tuition, but drove me away from cards forever (can’t play for fun anymore, so I don’t play at all).
“Once your money is spent, it’s gone.”
That’s exactly the kind of distinction I was making in The Completely Consumed Increment. Your money is only gone for the CCI part of your purchase. For the part of the purchase that was not CCI– the actual market value of an item– your money is simply wearing a different suit.
This is probably an ignorant question,but why wouldn’t you get a pro-rated refund for the time left on the WOW account? Woudln’t you just lose 1 months worth? I got a refund from City of Heroes when I dropped that.
Howdy,
I’ve not posted a comment before, but love your site and refer everyone I know to it! Great job! Thank you for your contributions!
Regarding your WOW account – if you’re unable to get a refund, as Pat suggests, perhaps you could put your “account” up for sale on eBay or Craigs List? Someone might be VERY interested in picking up your character – and hard work invested – for a fraction of the joining fee – and you can recoup some of the cost without having the temptation of logging back on…
Food for thought!
Thanks!
$mart Girl
I spent 2.5 yrs playing WoW and loved it so much I had to quit cold turkey; I couldn’t stop myself from playing it 6-8 hours a day. I ignored my kids, ignored my husband, my house was a mess, I didn’t want to do anything but play that computer. It was kind of disturbing. (But I still miss it, especially in times of stress.)
I think a lot of the sunk cost is in the endgame. You can casually level the toon anytime you want, but once you get into the endgame, it’s all about the time you spend raiding. You do it all the time but you never have as many epics as the next player — you feel like you have to spend *more* time raiding in order to get the items you want, but then you go to the next dungeon or they put up a new patch and suddenly all your stuff is “worthless” and you suddenly have to raid for weeks on end again.
I remember my guild spent months and months on Blackwing Lair and then … Blizz let everyone level to 70 and our stuff (which was the best in game) was not even as good as the greens you got on your 61 quests. Bleah.
That said … night elf hunters rule!!! Wooooooo!!!!!! *jumps backwards a lot*
I do not even know what you are talking about- and I am glad. I do not even buy magazine subscriptions- – much less game subscriptions. I think our lawn is sunk money- I wish I had the nerve to let it all go to weeds(we would cut them really!) and not keep trying to get grass to grow. I am afraid our neighbors would go after us like the villagers after Frankenstein. Our next house(5 years into retirement- 7 years from now) will not have a lawn (or not one we have to care for)
I really appreciate the idea that we have to think what things are worth to us now. If I can hold that in mind while sorting, that will really help. I didn’t know the term “sunk costs” but have bought into it too much, hence the overweight house.
I wish the people advocating that you sell your account on eBay would stop doing so. It’s against Blizzard’s Terms of Service, which you agreed to when you signed up, and by selling or buying your account you contribute to degrading the game experience for those who still play.
A large part of the game is cooperative and social; players group with others and need to rely on those others on a regular basis. The levelling process is designed to teach a new player the ins and outs of their character, not just hand them a levelled character they don’t know how to handle.
The person who buys your account has already proven (as will have you) that they don’t care about following rules. They probably also won’t care about anything but their own gain in anything else, either — hardly a gift to the other, legitimate players who then have the bad luck to encounter your replacement. It’s like spitting in the pot of soup just because you, personally, decided not to have another bowl.
@ Pat Wagner…
I suppose you could petition them for a refund and see if it works.
If you buy a 3 month subscription on Jan 1st, and you cancel on Feb 1st, you can still play the game until March 31st. You just cancel the automatic recurring subscription, so you can still play until your time block runs out.
My personal sunk cost fallacy/buyers remorse item is my car. I bought a new Nissan 350Z last summer, somewhat on a whim. I also have an older Corolla, so it’s not like I need the 350Z. My problem is deciding whether or not keeping the 350Z is worth it. It’s an extra $550 payment a month I could have in my pocket, but at the same time, I do enjoy driving it when I take it out for a spin. The sunk cost is just one of the many factors that goes into weighing my decision to keep it or sell it and lose money to depreciation. This whole conversation definitely gives me something to consider.
I never knew there was a name for it! I’ll have to file that one away.
Here’s some good financial advice, never play a MMORPG with a monthly subscription. Those things are so addictive they will eat up every other aspect of you life. Either that or you’ll have to quit playing them altogether which also means you’ve wasted your money. Its a lesson I learned the hard way.
@78 (Zeph Greenwell)
Frankly, I find that advice to be appalling and disrespectful. Just because some people are unable to control themselves does not mean that it’s a waste.
I view my MMORPG subscription as something of a lightning rod to avoid other spending. My wife and I used to drop $20 every single weekend going out to see movies. Combine that with going out to dinner almost every time (anywhere from another $20-$40), and we were probably spending an easy $200-$300 a month in that form of entertainment. Now, we eat out less, cook at home more, and hang out in WoW for awhile when we can. We’re not only eating better, we’re spending less.
Because we have WoW in our lives, we don’t partake in a lot of *other* expensive hobbies like movies or DVDs or heck, even other games all that much. I estimate that my spending is way down, thanks to WoW. We pay $30/mo for two accounts, and it’s a great way to get a lot of entertainment for a relatively low price point.
Like all things, moderation is key. Sure, people get hooked on it, but at least it’s a more easily controlled “addiction”. It’s not like trying to quit smoking or a drug or something (although I’m sure there are some people who think it feels like that).
As many have said, I think that financially, MMORPGs (and World of Warcraft, in particular) are damn frugal. For $15 a month, I could meet all my entertainment needs. During the month of August, my spending dropped sharply, and I’m certain it’s because WoW was sucking up my time.
However, there are other costs associated with the games, at least for those who cannot control ourselves. These other costs are the problem.
[quote]I feel like today I failed as a writer! 🙂
I don’t think I made it clear what the sunk-cost fallacy is. People seem to be equating “sunk cost” with “waste of money”, and while there’s an element of that here, they’re not the same thing.
Even something good can have a sunk cost. A sunk cost is just anything you’ve already spent. It’s not necessarily good or bad – it just is. The sunk-cost fallacy is believing you should spend more because you’ve already spent some. That’s what I was trying to write about.
Alas, I may have to tackle this topic again in the future…[/quote]
i feel this was directed at me, as i suppose in my previous post i took offense to your problem with WoW though i should not have.
for YOU it was definitely sunk, you only played and continued to play and pay because you had already paid so much and invested so much time into it. sometimes i can feel that way about the game, but like i said i would rather stay in and play something than go out…but then again im no good at budgeting which is why i subscribe to your blogs!
keep up the good work, your writing is fine.
You paid for a 6-month subscription, even knowing how addictive WoW is. There must have been a reason you did that. You could have just paid for the monthly and canceled it after one month. I’ve done it several times. I play for a couple months, then get busy and cancel my membership. Reactivate it when my schedule is slower, play for one month, cancel again. It’s a great game and you’ll never lose your character. I agree it can be very addictive, but there are other ways to combat that. Set a timer, only play it after you’ve ran your mile, etc. Anyway. Hope you work it out!
Jocelyn wrote: You paid for a 6-month subscription, even knowing how addictive WoW is.
Yeah. Dumb, huh? I knew it was foolish at the time, but I couldn’t make myself pay for just one month. “I can save by doing six!” I thought. HAHAHAHAHA.
It sounds like your “consumer club” was UniMart?
J.D.–I’ve done the same type of thing, and more than once. I would join Weight Watcher’s and buy the multi-week plan because that was the best deal. However, as you can guess, I would only go for a short while, so in effect the times I did go ended up costing way more per visit than the usual “pay as you go” method. Weight Watcher’s can be a great weight loss method, but it’s just not a plan that works for me.
It’s smart of you to bail out now. Some things we can just discipline ourselves on. We all have them.
@Runner Girl
“Time you enjoy wasting, was not wasted” John Lennon
The concept of wasting time lies in the eye of the beholder.
@Brian Arnold
Like JD says, the other costs are the problems. MMORPGs REQUIRE a HUGE investment in time. While you’re not playing all your friends are getting ahead of you and there is a lot of peer pressure to keep playing. If you’re not willing to sacrifice your real life on the alter of WoW (or FFXI or others) then its best to avoid them. I guarantee that anyone who gets into this game will spend less, eat less, sleep less, and socialize (outside of the game) less. If you think that’s a good thing, that’s your decision.
@Zeph Greenwell
Sorry, but your guarantee is worthless. Let’s break it down.
I do spend less, and that’s great. My quality of life isn’t suffering, and if anything, has improved, because I’m not throwing away my money at theaters and dining out like I used to.
I don’t eat less. I eat better. That’s a great improvement. I can even say I’ve lost 25 pounds.
Sleep less? No. I sleep just as much as I always have. Perhaps there is the occasional night where I stay up, but I only do it when I know that I can sleep in a little the next day.
Socialize less? Quite the contrary. I still get together with friends just as much as I used to. If anything, my wife has actually become more social thanks to WoW’s influence, and we get together with friends more frequently than before. We’re even flying out to California for BlizzCon next month (which is a big cost, but one we’ve been saving for and are using as our vacation this year) where we’ll be meeting some friends in person for the first time, and meeting up with others we’ve known for years who happen to share our hobby.
If you want to advance really fast, sure, they require massive amounts of time. However, WoW is easily the most casual-friendly MMO on the market today, which attributes to its success. All of my friends hit level 70 (current cap) three or four months before I did. I eventually made it up there and have a decked-out character now, which I did bit by bit over time. It’s very easy to get on for an hour or two and feel a sense of progress and accomplishment.
I’ve never let my real life suffer because of an MMO. That being said, I realize many people have, and that it can be a serious problem for them. If you don’t have the willpower to sustain balance, then perhaps you shouldn’t dabble in it, but there are many people out there just like myself, that can partake of it in a healthy fashion.
All things in moderation.
partgypsy, we gave a rescue dog. It has cost us lots of money in thyroid meds, weight control and as an older dog a special diet. But being dog lovers we realize taking a dog is for the life of the dog. The devotion and love the dog shows is beyond any money that we spend.
Two words: Guild Wars
Better graphics and no monthly fee.
Sunk cost is just time + cost of the game.
However, I do sympathize. I had a problem with Doom, Doom 2, Diablo 2, Civilization 2, and Call of Duty.
My wife and kids cured me of my old video game habits. I resisted but finally came to the conclusion that it wasn’t good for me and my family…plus I just don’t have the time anymore.
As an occasional indulgence in moderation, …sure…but do not be mastered by it.
Wow, how did I miss this post? Shows me to take a day off from the blogosphere.
You might be interested in my article 3 Things World Of Warcraft Taught Me About Money Management, whic you can find here: http://www.btgnow.net/2008/09/3-lessons-world-of-warcraft-taught-me-about-money-management/
And it’s all about paying the fee monthly rather than thinking you’ll save money buying 6-12 month increments. Means I can quit anytime and still be out less than it costs to go to a movie with friends. I’m glad someone else thinks there’s valid financial lessons in video games!
GREAT post!
Excellent article, great explanation of the sunk-cost-fallacy, sorry to see your post get derailed into a WoW discussion. 🙂
I don’t want to take things further off track, but I just wanted to point out some wonderful irony: when reading your blog through google reader, Google decided that your post would be the *perfect* spot to place an add for a wow gold sellering company. 🙂
I’ve declined to start playing WoW because of just this problem. Many friends have tried to get me to play; one even used the argument, “But we live so far away and this is the only chance we’d get to talk to one another!”
Sorry, dude. Me and WoW is like an alcoholic with booze. He can’t have just one drink, and I can’t play for just one hour. I like you and all, and I wish we talked more, but I just can’t do it.
I just play a completely paid for Age of Empires II game and whomp on the computer when I feel like vegging out for a while. Not quite the “challenge” of the more modern games, but completely free and no additional monetary cost.
Of course the time spent still costs, but that is a whole other issue.
Being OCD is really the root issue on the latter…. 🙂
Brad
This is really a common trap for most people. If we look at it from another angle, for example, you spend money buying a book. If the book turn out to be not interesting, we tend to finish reading it too. But those ebook that you might have downloaded some where, which is free will forever sit in your hard disk without being opened after many years.
Even when one is aware of the trap of sunken cost, one falls into it now and then, right? This is just how humans are – not perfect, and certainly not rational. But in a way the $100 you spent on the marathon which you did not end up running, was not a total waste of money. It may have contributed to you getting into running in the first place and to you staying with it. You also drew a lesson from this episode. All this may not be worth $100 though.
By the way, I signed up too late for a marathon this spring. It was booked up by the time I decided to run it. But no harm done. I ran Boston two weeks before the one I missed. And I have another one coming up next Sunday, for which I signed up 6 weeks before the event and the day before the price would have increased.
Nice example. I had a similar situation with a knee injury a few years back.
One additional worry about such an injury are the nagging aches and pains that come with not adequately rehabilitating an injury like this. It sucks when you lose money, but when you consider the long term implications, I think you made the right choice.
Great post. I can think of something else. It’s like you bought a stock and then it tanked. However, your inner mind has hard time letting it go. So you keep buying and buying thinking you can bring down the average cost. And then one day you find out that the company declared bankruptcy. This happens a lot to new investors. I made this mistake once in my life too.
Cheers,
A Dawn Journal
http://www.adawnjournal.com
If the $100 motivated you to start exercising and continue exercising then I would say it was a good investment.
But it’s not necessarily a sunk cost. (Sorry) You’re more physically fit than you might have been had you not had that goal and pressed toward it. You just got something different for your $100 than you thought you would when you spent it.
Same for the $80 on the games. You got your $80-worth in the few days that you played, not in the six months. Cost you more per game, but cost is cost.
In the end, money spent is money spent, and you never know what you’ll get for it until you’ve got it. Spending money is always an investment in the future – you buy something to get a certain use out of it. That doesn’t mean reality is going to meet your expectations. But if you never had expectations, you would never get anything at all.
JD, I was hoping to run into you on marathon day, but I, too, am home on the couch! A bad case of tendonitis in my foot (sustained during Hood to Coast) put me out of training for long enough that the marathon was no longer feasible. I hadn’t been training as diligently as I would have liked, so it was probably for the best.
Still, I’ll admit to feeling wickedly glad that it’s raining today (for the first time in the marathon’s 38-year history)!
Paying for a marathon is tricky. You really have no choice but to pay up front. But so many things can go wrong to prevent you from running. Endurance events are unique in that such a disproportionate amount of training goes into just one event.
Wouldn’t it be great if you could pay after the race? I think people would be more likely to listen to their bodies if they hadn’t already shelled out the money.
“What’s important are future expenses and future happiness. To the extent that we can focus on the future instead of the past, the better off we’ll be financially (and mentally).”
Great post, but the above statement is a complete reversal of the truth, as the future is only a thought form, a complete illusion. Yes, you of course plan for it, but the only thing that is real is the present moment. And it’s so much more healthy to focus on and take responsibility for what is primary and real instead of a secondary mental abstraction that may or may not arrive … and when it does arrive comes as the present moment. 🙂
I don’t agree with Dave at all. This is a personal finance site. It is about future plans. To dismiss any type of planning as “mental abstraction” is ridiculous, and to only focus on the present is really nothing short of hedonism.
Hmm what will take longer, training for the marathon or reading the 63 page credit card agreement? Which will make you sweat more?
Hi – on the subject of the marathon, normally the best way to approach it is to break it down into smaller steps. In other words, don’t enter (and pay for) a marathon yet. Choose a local 10K and commit to that, then once you have comfortably completed that, consider a half-marathon and then you can more confidently try for a full marathon.
I’ve just completed a 10K today in fact (first one in 10 years) and now I am happy with that, I can start to plan first for another 10K in the spring, then a half marathon in mid to late summer and finally if everything goes well, the full marathon in the autumn.
Good luck!
As Jess’s anecdote indicates, running is NOT for everyone. I see this type of story over and over. People get this idea of a “marathon” and then they start training and they quickly get an injury. There was even a reality show about people doing just this on PBS or something where a few of them got injuries as well – and they continued to believe in the dream of a marathon and continued training while sustaining further injuries.
How this related to sunk costs metaphorically is that you can have a sunk cost related to a dream also. Maybe a better dream would be to be a power walker – it’s very low impact and probably healthier for you anyway. Running has a dream factor associated with it. That’s why politicians (esp. Presidents) are always jogging for photo-ops. The truth is its a dream that most people can’t achieve b/c our bodies simply aren’t designed for running. Walking on the other hand – well, you don’t even have to consult your doctor is you want to start a distance walking program – enough said.
Running is over-rated and bad for your joints. If you run and your body hurts, esp. your knees, then it isn’t for you and there’s no shame in that. You’re just like 75% of the population.
Our financial woes are frequently based on unrealistic dreams of grandeur.
JD,
Congratulations on taking action to improve your health. Financial considerations aside, making the mental commitment of time and energy is a fantastic, huge step.
Great post J.D. And it touches on an unfortunately common theme in today’s fitness culture. Too often, we relegate health to a subordinate role while we pursue fitness, performance or physique.
In a world where we “want it all and we want it now,” it can be so tempting to take the path that seems the most expedient. The funny thing is, when you put health first you end up meeting your other goals more quickly anyway. When you give yourself time to adapt gradually to new stress, when you consciously engage in compensatory exercise to ensure that your physical development remains balanced, when you view recovery as an active and important part of your training, you end up on the straight path to your goals.
You may be able to drive faster on the other path, but it is riddled with twists, turns and pit-stops while you battle over-reaching, injury and less than ideal physical adaptation. Going balls to the walls and playing the “no pain, no gain” game may seem like it takes us more quickly towards our goals, but it plays right into the sunk cost fallacy. Even when we know deep down that we need a day of lighter recovery and compensatory training, we have the tendency to want to not “lose out” on the momentum we’ve built in previous training.
This inner dialogue may sound familiar: “I’ve built my benchpress up to 200 pounds by training it three days a week, I’m not going to miss a session now!” However, our hypothetical fitness enthusiast has been stuck on 200 pounds for 6 months and has an achy shoulder every time he comes home from the gym. But, he perceives that he has SUNK COST in the bench press and is therefore unwilling to revise his training plan.
I see this all the time at the gym. And clients are often amazed at how much progress they make when I take them off of their sacred cow exercises. In fact, when they go back to them, after having not done them for a while, they usual improve their numbers!
Sorry for the long-winded comment. I think your decision to put your health before your performance goal was very wise indeed. And it is a great idea to adapt the idea of sunk cost to exercise J.D. I think I might steal the idea for a post of my own. 🙂
Cheers,
Adam
I think the point is that plans are not a savior. The human brain is horrible at planning more than a couple of days in the future, because we tend to take the current situation and apply it to the future (which is of course ridiculous). Plan, sure; but it’s more important to plan to change your plans in the future.
Advanced Marathoning by Pete Pfitzinger & Scott Douglas was my husband’s nightly bedside reading as he trained for his first marathon. Has an excellent 24 week workout schedule. Worth reading through to see if you would want to commit to a marathon. (I looked and decided then I would remain a casual 5k person.)
I’m glad for this reminder. We live in the country and back in January sunk a lot of money into a satellite for internet, instead of the free dial up that we had. The satellite is slower, moderately, than dial up, so we’ve toughed it out. But, recently due to family expansion we needed to buy a new car. With the extra expenses of the new car, we’ve been looking for ways to cut our costs and have tossed around the idea of getting rid of the satellite internet since it costs $80 (and cost $400 to set up), but we keep rationalizing the $80 with the $400.
Now, I’m thinking that we need to revisit the subject. It’s making sense to cut our losses now, instead of struggling through the next few years paying for a mistake that we’ve already made.
A little off topic here, but I agree with Matt.
It’s always a bit ironic that when people try to become healthier, they turn to running marathons. While it’s certainly better than a sedentary lifestyle, joints and tendons are destroyed by the constant pounding they have to absorb during extensive running sessions. Another side effect is a chronically elevated cortisol level which accelerates aging and shrinks muscles. Just look at long time marathon runners.
Shorter, more intensive workouts like lifting weights or interval training are much healthier in my opinion. And they’re more efficient, too, which means you spend less time doing them with equal results in regards to your fitness level.
one thing we’ve learned in recent years is to take injuries seriously and lay off when it hurts. i learned fairly early, but my husband took a long time to realize his body wasn’t indestructible.
it’s expensive to not be in good health, both financially and emotionally.
I think that the reason it’s hard to follow you sunk-cost posts is that what you have spent is money, but what you are trying not to spend is time or effort.
I agree with Diatryma (19). It seems Gwen’s example (16) is a great example of the sunk cost fallacy. You feel like you need to keep paying the $80 a month because you paid $400 up front.
Another example would be a cell phone plan. I had a friend who wouldn’t cancel his plan even though he couldn’t get a signal at home because he would have had to pay $200 to cancel the plan early. Instead he was paying $60 a month for a plan that didn’t meet his needs for the 20 months left on his contract. Perhaps it’s not exactly a sunk cost (as he didn’t pay it yet), but his anticipation of that penalty was what kept him paying money for a cell phone that didn’t work.
I have a friend that will always finish a hamburger because she “paid good money for it.” While I agree, I would rather leave without a stomach ache. So, I offer this option: is the $5 worth feeling full? If so, buy it. If it is not worth it (therefore making her think she has to eat it all to be worth it) walk away.
I find it a little easier to see how ridiculous the sunk-cost fallacy is if you look at it from a business perspective:
Let’s say you are a widget company. You’ve just built a brand new widget factory, at a cost of $100,000.
Now you start building widgets with your factory. But wait! You made a serious miscalculation! Between paying your workers and running the machines, building a single widget costs $2. And now you discover that people don’t really want them–you can only sell them at $1.50 apiece.
Well dang it, you already spent $100,000, right? That’s a lot of money compared to the cost of building a single widget. You might as well keep the factory running, since you already spent so much.
No! You are losing money on every single additional widget you build! The more you build, the more money you will lose, onward into infinity.
The only course of action you can reasonably take is to shut down the factory and stop losing money. You cut your losses. Trying to justify the amount you spent on the factory by continuing to lose money would be crazy. And it’d probably get you fired by your stockholders.
It’s not always so straightforward in real life (i.e. your computer game example, where you were losing time rather than money). But the principle is the same: if continuing on the same course of action will cause you to continually lose [time, money, health, whatever], stop doing it.
It’s that simple.
J.D., no point in throwing good money after bad, eh? I call it cutting my losses. You see this in the stock market all the time. Instead of throwing in the towel on a bad investment, people throw more money at the problem — getting even more entrenched in the position.
At some point it simply makes more sense to walk away and move ahead.
Best to you, J.D.
Great examples! I especially like the satellite example and the widget example. Both are exactly cases of sunk costs, and much more clear-cut than the two I’ve tried to share. But believe me! Attempting to pursue a marathon just because I’d paid for it would very much have been engaging in this fallacy.
I just did a regatta this weekend that I probably shouldn’t have, medically speaking. Wasn’t really about the (heftyish) entry fee I had already paid, though, since it was a charity event and the money went to a good cause. Just about having fun, which I did. But I’ll try to lay off for awhile now.
As for me, I had over the past 3 years taken a lot of insurance policies. After discovering about personal finance through this blog and other blogs, I came to the realization that I was throwing away a lot of money. This year I did not renew many of my policies. I have instead invested the same money in mutual funds which I began to invest in this year. Sunk cost falacy overcome in my case.
So have you been on your bike at all since July? Cycling is low impact and has a relatively low risk of overuse injuries (assuming a sane schedule and properly fitted bike), and the weather is gorgeous now for some short and long rides.
Cheers to you for listening to your body and making your health a priority. A lot of patients I’ve treated for sports injuries don’t necessarily view their health as a long-term investment, and push to “recover” to less than full capacity in order to compete in an event. Several years later, they’re having surgery in the prime of their life and aren’t able to tolerate sustained physical activity at their previous level of athleticism.
Smart decision on your part– I wish other people would take a step back to reevaluate and adjust their goals as you have. Good luck with your training!
Here is my sunken cost, clothes in my closet that were the greatest fad, greatest deal that I never wear, except I paid “good” money for them so I can’t part with them!
They take up my limited storage space and are no value to me because I don’t wear them, I just keep thinking what I paid for them and have a hard time getting rid of them.
If I keep them they are a constant reminder of how I wasted my money, so why don’t I just donate them to someone who can use them and wear them. What makes us think that we can not part with something because of what we paid for it or it is brand new?
By finally donating these items I find joy in giving them to someone else who actually needs them and will use them. I also let go of the fact I spent good money on them, but it wasn’t a complete waste if someone else can use them.
I will be wiser next time to think through my purchases a little bit more by asking myself do I really need this?
http://downwithdebt.today.com/
My sister totally neglected her body training for the marathon. She got sick and instead of resting, kept training, and stayed sick for months. After the marathon, she went straight to the medical tent and our friends literally carried her home. So no, don’t feel bad about missing the marathon.
On a positive note, my sister taught me that if you buy a steak, you could eat the whole thing, eat half of it, or throw it at someone’s head. Everyone thinks you are paying for the first option but it’s only wasted money if you feel forced to do something you don’t want to do with it – like stuff it into your overflowing stomach. You pay for the option of running the marathon but what you do with that option is up to you. Whateve ryou choose, it won’t help you get your money back (unless you win the marathon). Just another way to look at sunk-cost.
It’s hard for a person to admit that a cost is really sunk..
Once they’ve invested a substantial amount into something, be it $, time, emotions, etc. a person feels that they must continue on because if not they’ve wasted all their investments, and therefore they still look at the invested as investments and not as they really are, sunk costs.
I just registered for my first marathon. It’s not until April, but I decided to register now because a) it fills up fairly early and b) I’m much less likely to back out if I’ve already paid for it. I’ve done several half marathons in the past and will be doing a 15-mile trail race later this month, so this seemed like the natural next step. I’m excited about it!
I admire your willingness to be realistic, because I can relate to not doing so.
Luckily though, my sunk cost back then (May 2007) was only $14 for an 8K race! I have since ran a 10K successfully and have had ample time to prepare for my half. (That’s coming up this weekend!)
Anyway, I admire your tenacity! And thanks for this site.
I enjoy your posts; your blog is one of my favorite financial sites. One comment: you use the phrase “a couple times” and “a couple months”. This is poor grammar. It is supposed to be a couple OF times or a couple OF months. I thought you would like to know since you want to be a professional writer.
Sunday, I ran the Portland marathon, which was significantly easier then my first marathon. Only real difficult section was the St John’s Bridge.
Why don’t you progress with races rather than trying to go from couch to marathon. I think couch to 5K is a better approach. As your endurance builds your can run longer races; 10k and halfs.
In your situation, I probably would have gone ahead and walked it. Walking for 6 or 7 hours in the rain is good exercise. 😉 Dude, you missed getting your finisher shirt out of the deal!
Forgot to mention that I think walking a marathon is quite a accomplishment!
While I understand what you are trying to say about sunk costs, if you are set on doing a marathon at some point, isn’t there an advantage to making use of the asset you already have, rather than repurchase another one next year?
I have heard movie tickets used as an example – if you have purchased a non-refundable movie ticket, it shouldnt influence your decision on whether to go to the movie or not. However, you would have to weigh up, if you plan to see it at some point and dont go today you would have to repurchase, thus incurring additional future costs…
Great blog, JD – one of my writing interns just sent me over a blog about sunk cost (after I loaned her my signed copy of Tom’s book) so it was funny to see them both in your post.
The thing about sunk-cost is that sometimes, it works in our favor and so it is hard to be as careful with it as we should be. Or rather, because we don’t always evaluate the past clearly, what we think is a sunk cost may not be.
Take marriage as a classic example. We know that couples that have been through hard times together and survived them tend to be able to use that shared experience to stay together later on. After a bad fight with your wife, you could say “Man, this is terrible, I’m married to someone I hate, I should cut my losses.” Fortunately, sunk cost swoops in to remind you that you’ve already sunk a bunch into your relationship, and it’d be a shame to lose all that effort by leaving now. And when you’ve calmed down, that sunk cost will have kept you in a marriage that probably isn’t such a bad one.
So the real question becomes knowing when sunk costs are hurting you and when they are keeping you in something that you’ll be sad to lose. You figure out how to know that, you let me know. *grins*
Hi JD, this is just what I was looking for to kick-start a convo with mi esposo. My personal example of a sunk cost: We already own a timeshare (excellent value, we love it, the big money was “sunk” all right but will pay off for decades in high-value vacations). Last year I bought in to a points system with a different “vacation ownership” company. The program doesn’t work as described and we haven’t used it at all. I’m going to “sell” i.e. get out of it. We did get two nice free two-night stays at linked-in resorts, but the money I put down is gone, baby, gone. Doesn’t mean I should keep paying the monthly to keep the points – if I can’t use ’em like I want ’em, that “sunk cost” just gets bigger. So all y’all gamers out there … um … obsess much?? … try not to assume that an article that mentions WoW is *about* WoW, mmmkay?
Nice post! You illustrate nicely the difference between “Do I own the plane ticket?” and “Does the plane ticket own me?”
Did you not take out travel insurance, or does it not work the same way in the US? Certainly for the UK it will reimburse you for travel costs if you’re called for jury service.
I know travel insurance is a tricky one for some people and there’s the saying “Never insure for affordable losses”. Would be interested in your thoughts – maybe for future posts!
I’m never been a fan of travel insurance. Kris likes it, so we get it for our long trips together, but we’ve never ever used it. Maybe I should take a closer look at it?
To be honest if it was just for cancellation, I probably wouldn’t be so bothered about travel insurance either. My biggest fear when travelling is an accident that would land me in hospital = many £££ in medical bills. That’s simply not an affordable cost for me, and as I like to be quite active the chance of accident or injury is perhaps increased.
I’d be very happy if I never have to claim on travel insurance in my entire life, but don’t begrudge paying for it when an entirely possible accident would bankrupt me.
The cover for cancellation, lost baggage, personal liability and so on are all just welcome extras!
I’m the same way! I get travel insurance for the health coverage — even if I’m only going to the U.S. for a day. (Imagine what a car accident could do!)
One thing to watch is the loopholes though. If I remember correctly, most policies don’t cover acts of war, civil unrest, terrorism or pre-existing conditions (like if you bought travel insurance when there’s a travel warning for that country or a hurricane warning, etc.) Most companies also won’t cover you if something happens while you’re intoxicated, but most people don’t know that!
A “cancel for any reason” policy is also more expensive than ones with more conditions.
Travel insurance for medical coverage is something people from Britain usually get because their health at home is covered through a national health care system that only works when they’re in the country.
In the US, health insurance is through private companies and generally (if you have a decent plan) you will be covered even when you are traveling. You may have to pay out of pocket in a foreign country and then submit bills for reimbursement, for instance.
I notice this is a big difference between me and my British friends. For Americans, there are a lot fewer reasons to get travel insurance–mostly to cover costs of having to change air tickets, etc. but it may not be worth it for such small things like that.
Sorry about this, JD. Just one quick question though – did you try calling the travel agent and/or airline directly? I don’t know if it will help, but it’s worth a shot.
We had a similar situation recently. The cost of the ticket was $1600+, which to me is a lot to just let go. It was booked through Orbitz. We thought it was a non-refundable ticket. But I called Orbitz anyway. The first agent was not very helpful. Instead of trying to reason with her, I just hung up and called again. The second agent was awesome! She dug through the terms and found a clause that if the ticket holder cannot travel to do a medical condition that can be supported by a doctor’s letter the ticket can be (partially) refunded. We faxed the doctor’s letter. There was a $250 penalty, but Orbitz worked with the airline to get even that refunded (we have received an email from the airlines that the full amount of the ticket will be applied back to the card, but it will take up to 2 billing cycles to show up….).
Since this post is about ‘sunk costs’, here’s my theory on sunk costs – “It is not a ‘sunk cost’ until you give up on it”. Sometimes, if the cost is low, and the time spent on trying to recover it is not worth it, I just let it go. At other times (like this one), if the cost is big, I try my best to recover as much of it as I can, so the “sunk” part stays small (In this case, I was able to make the “sunk” part 0 – my husband had actually given up and would have taken the $1600 hit)
Good Luck to you!
I forgot to mention – we didn’t have any travelers insurance either. Just keep calling until you find one agent/representative that can sympathize with your situation, and you may be able to recover at least some of the cost.
I would like to weigh in on travel insurance. I realize it’s a personal choice, but we never buy it any more and as we travel frequently we have now saved the equivalent cost of a very expensive trip….. as it ain’t cheap.
Our medical insurance would reimburse us for any related expenses so that is not a factor.
And we always joke that if we are in a bad accident right before a cruise we’d rather recuperate on ship board than at home in bed.
To each his own.
This may well be a US/UK difference. Does the health cover you need to buy anyway typically cover you outside the US also? If so, I can understand why travel insurance isn’t such a priority.
I must admit I’ve made more or less the same decision having travelled in Europe without insurance as that’s covered under EHIC (https://www.ehic.org.uk/Internet/home.do) Anywhere outside Europe though, no way.
Travel insurance is worth it (in my opinion) in two situations:
1) medical costs in a foreign country – not an issues if you have other insurance. I wouldn’t include EHIC in this unless I’d checked carefully what it covered in my destination country (it varies)
2) repatriation of you or your remains
Both situations are rare but potentially astronomically expensive. I had a friend (from the UK) fall ill in the Netherlands with chicken pox. Minor illness, needing next to no treatment, but because he was infectious, he couldn’t fly charter, and no hotel would take him. It cost thousands to medi-vac him home. Without insurance, he could have been in deep.
Like all insurance, the risk you take is that you will have to cover the cost if something happens. It’s a trade-off. I like the security. I can understand if others are prepared to take the risk, but they should also be prepared to take the hit.
I’d say it worked out in your favor. London’s on fire (literally and figuratively) right now, you know; probably not the best place for a vacation at the moment, unless you want to Get Rich Quickly by looting electronics stores with the teenagers.
Hey, when my American boyfriend came to visit in December, I took him to see the sights- the students being kettled were in Westminster just across the river from the aquarium! He got his photo taken with a riot cop, and we played a game to see who could get a shot of Big Ben with 3 or more helicopters in the shot.
I like to think he saw a true representation of an angry little island demonstrating their democratic right to protest.
But yeah, you’re right. Now is not a good time to go wander round London unless you’re a photojournalist. Most of the places hit are just the dumps, but you wouldn’t be able to move freely or go to Camden or chill out where you wanted to.
We’re leaving for London in one week, the first part of a very expensive trip in preparation for a year. It’s set in stone.
I just found out about the rioting/looting this morning and joked with my husband that we might come home with an extra DVR.
But seriously, that is a week away and I don’t consider Great Britain a war zone and my feelings about travel have always been that if you can’t roll with the punches then you ought not to travel. There are constant surprises in life.
That being said, I hope peace has broken out by next Wednesday.
You’ll be fine. Things, as usual, are being massively overblown by the media. The majority of the country is fine, people are getting about their lives with business as usual.
My town is less than 15miles from Ealing, which had some bad stuff go down. We also have a large population of the kind of people being blamed for the riots. Total damage? Starbucks had a brick thrown at the window.
Travel is about adventure, and I think you’ve got the right attitude 🙂
You know what? I’m glad you’re delaying this. Mostly because that’s what’s right for you, but also because now is really not the time to be a tourist in London, and I wouldn’t want you to get caught up in everything that’s going on there on top of what’s going on at home.
I’ve spend the last 24 hours regularly checking on my friends by social network, and was up until late last night with a friend who was staying with me on the way to London. Her hotel was a bit too close to some of the trouble for comfort, and the car park didn’t look particularly secure. Amazingly, she was able to cancel it without penalty, and we rebooked a room in a safer area with a more secure car park, and for less than her original room!
If anyone reading this is in London, stay safe. Others, please spare a thought / prayer for both those whose lives and livelihoods are being destroyed by the rioting, and for those who feel so dispossessed that they see rioting and destruction as a solution to their problems.
Hi JD,
I’m an avid reader of your blog! One of the few that I keep reading!
I agree with your definition of sunken costs, but I think that what you are missing are the opportunity costs.
From what I read you will be going back to Europe sooner or later, which means you’ll have to spend those 900$ again (more or less) on your trip there.
So, you basically postponed a thing you will do in the future at the expense of 900$.
So, in my humble perspective, you “lost” 900$ to face your other personal aspects of your life.
Having this said, I personally believe that family comes first, so I think I would do the same. But the flight ticket money would be a though thing to go over 😉
Keep the good work!
Cheers,
Nuno, The Netherlands
Thanks for clarifying this! I knew the fact that he would eventually be taking this trip had to factor in somehow, but I didn’t think of opportunity costs. I guess in this specific scenario, the $900 is a sunk cost, but in the grand scheme of things, it’s more complicated than that.
JD, if you bought the tickets with a credit card, check to see if the credit card company can take care of it. American Express in particular is great about that. One big pro of credit cards!
I was thinking about this and it’s really hard to figure. Given the length of the trip it’s likely if JD goes at a different time, e.g. next year, it will take the place of some other trip he might have taken. That will push the next trip out and the one after that etc until eventually there is some trip he doesn’t go on because he is no longer traveling for whatever reason. (Certainly once he eventually dies he will stop traveling 🙂 So not going is, in effect, skipping a trip, even if it’s not this particular trip he skips.
JD now a days few of the costs being mentioned in GRS is way beyond imagination and still being called as cheap or frugal cost.
You say $900 for one way ticket to London in cheap. I guess this is not business class ticket, in that case its a still for $900,
If its not business or first class, then one ticket to London shouldn’t have costed you that much.
Don’t you use comparison fare tools like Orbitz, Kayak priceline etc?
After reading your post I gave a search on orbitz, Cheapest NYC to London ticket one way for 31 Aug is $446 + tax.
Any way every body’s concept of ‘cheap’ is different. I do believe whatever happens, happens for good. Your trip cancellation is for your own good. Better luck for Latin america and Antarctica trips.
SB, JD lives in Portland . . . on the other side of the country from NYC. Flying to England from the West Coast is expensive, and JD’s ticket sounds like a decent price to me.
He’s flying from Oregon, not NYC.
still its costly, Sep 31 flight from PDX to LHR one way is 665+ tax = approx $720. I am pretty sure JD booked a couple month in advance
That’s out of the summer travel season. Totally different than flying in early August.
Err, a ticket for September 31? Any money spent on that would definitely be a waste!
Of course I’m using these tools, but I wasn’t looking for fares from NYC on August 31st. On July 4th, I was looking for tickets from Indianapolis on August 8th. (I also looked at fares from Portland.) I spent two hours trying to find a good deal on a ticket. Nearly all of them were $1400. As I recall, there were a couple at $1200. I only found one below $1000, and that’s the one I bought.
Airfares fluctuate all the time, and for a variety of reasons. Don’t assume that just because a flight to London from your hometown today is cheap means that the same was true for me when I booked my ticket. I’m shopping around. I promise!
This is a GREAT article. It explains Sunk Costs perfectly, something I’ve tried to explain to my girlfriend but haven’t been able to do. I’ll definitely be forwarding the article along to her.
Sunk costs are a concept that few people understand. And there are two types – money and time. I see the latter all the time with bad relationships. People (esp women) figure they’v spent 2 years, don’t want to start over at 31, etc, but it’s irrelevant. If it’s not going to work out, you’ll just end up wasting more time later. Or when people say things like, “I can’t go back to school. I’ll be 37 when I get out!” Well, you’re going to turn 37 anyway, God willing, so you might as well turn 37 with your degree! With respect to money, the old adage sums it up best: don’t throw good money after bad.
Thank you! I needed to read that. I’m wrestling with returning to school, and I really will be 37 when I’m done and that’s been driving me crazy. But I’ll be 37 in 3 years anyway, so why not? Don’t know why I’ve not thought about it that way before. 🙂
Being 37 is actually quite relevant to that decision (even if the speaker in your story doesn’t realize it). The older you are when you get a degree, the less time you have earning money with said degree. Would you advise a 53 year old to go to college for a degree, when they would graduate at 57 and have only 10 years to earn it back? The could spend those 4 years working instead, and invest the money they would have spent on the degree, and at 67 end up with more money than if they went back to school. At 37 there may still be time for a decent ROI but it’s certainly worth considering the alternatives.
Ha! Good luck with your book sales in Antarctica. It also sounds like a very good decision, even though it was difficult to make.
Good post. It sounds like you made the right call.
But I think this isn’t really the definition of sunk cost as you still intend to go on this trip and will have to buy that ticket again. A good example of sunk cost is seeing a bad movie in the theater – the money’s already gone so is your time better spent elsewhere?
Here the question really is whether staying home now is worth the price of a future plane ticket or the price of never taking this trip. For you it sounds like it is.
I used to travel regularly for work and figured it was cheaper to always book the non-refundable train tickets to save money. I knew I’d probably waste a ticket once and a while, so the cost was built into my budget. I still saved a lot of money overall.
$900 is a lot of money for some people to lose, but if you’re a frequent traveller I think it helps to budget for mishaps too. 🙂
Excellent point. All the money saved over the years NOT buying the “cancellable” tickets has probably more than covered this one $900 ticket.
More to the point, the attitude is a good one. Don’t insure things that really don’t need insuring. Good grief.
I’m trying not to think about the $900. When I think about it, it makes me antsy. That’s a lot of money to lose. But it seemed like the smart choice at the time. And, to be honest, I’d probably make the same choice today.
Perhaps you can use this non-travel time to find $900 worth of Stuff to sell to make up for the expense!
It’s a bummer but it sounds like it was the right call. If you had gone on the trip a big chunk of your brain would have been preoccupied with stuff going on at home.
Just think about the money you are saving – food, hotels, gear, gifts while traveling would have probably equaled at least $900 when all was said and done.
And you probably would have been distracted and not fully enjoying it the whole time you were there.
Considering sunk costs as valueless is a bit of a fallacy. Saying that “sunk costs shouldn’t be considered when making a decision,” may make you feel better about it (not that you should feel bad – it sounds like you made the best of a bad situation), but at the end sunk costs *do* have a value. That value is an opportunity cost.
To use the same example, now, if you still want to travel to London, you have to:
* Carve out another slice of your life for the trip
* Buy another ticket
* Re-plan and re-book reservations, accommodations, transport, yadda yadda yadda
These all take extra time and money.
It is true that the $900 was already spent – there is no changing that – but what the VALUE of that sunk cost amounted to was the *FUTURE* opportunity cost of a potential replacement (which I can’t say what it would be. Perhaps $900, perhaps less), or the lost benefit of going (in the event that elect to not replace it).
Once again, it sounds like you made a good choice, but don’t falsely attribute what you made of your circumstances to sunk costs being valueless.
To further illustrate my point, you say “[i]n fact, it’s when we assign values to sunk costs that we make poor decisions,” but I believe you’re simply applying selection bias – you aren’t taking into account all of the *GOOD* decisions you make with your sunk costs, because, well, that’s easy to forget. It’s the bad ones that stand out.
People don’t have a predilection for valuing sunk costs because we are superstitious or foolish – valuing sunk costs may bite us, but doing so benefits us on the bias. That is to say, peoples that rely on their past decisions have tended (in general) to fare pretty well, whereas societies that constantly evaluate their current and future decisions in a path-independent manner *don’t last long* (admittedly, this is perhaps a bit “post hoc, ergo propter hoc” of me, but really, if you throw out the baby every time the bathwater needs changing, then there are no more babies, amirite?).
No, sunk costs have no value by definition. However, a corollary of the definition is that whatever you’ve sunk your money into is effectively free.
So J.D. currently has a choice between a free flight now, when it’s no longer convenient, or paying for a later flight once things have calmed down. That free flight is mighty tempting, but sunk costs are still sunk.
I think you may be confusing “having no value” with “having no value for decision making.” I could find no definitive reference that said sunk costs had no value (if you could supply one, I would appreciate it) – in fact, almost every definition referred to them as an “asset”, which by definition *has value*. Amusingly, the highest ranked result I found (in a few minutes of googling) claiming that sunk costs have no value was this very article.
The real issue with sunk costs, and the sunk cost fallacy, is that people disproportionately weigh past decisions when they evaluate present and future choices. This is to be avoided, as it statistically leads you to make poor choices. However, the fact of the world is that you *have* made those choices – your current world is in fact a *result* of you having made those choices – and so they influence future costs, which are what you have to weigh. This is, of course, hard to do, so people fall back on their sunk costs (because that is known, and easy).
That $900 ticket has value. That value is real (to provide an example that is more direct: in a world where tickets were transferable, he could even liquidate the ticket to realize that value). He just can’t use the fact that he spent $900 on a plane ticket in an argument about whether he should take that trip or not. Although you have to use the facts of the world and your future costs to make that decision, that doesn’t mean sunk costs are valueless.
Isn’t your use of “asset” the same as his use of “free flight”?
I like the way you put this re: lost cost of a future replacement. My boyfriend and I have discussed this and your point is the one I always try to make (but have failed). For example, he says there is doesn’t matter if you accidentally leave a takeout container with leftovers at a restaurant because it is a sunk cost. I say that it does matter because now you’ll have to find and pay for something else to eat for a meal in the future, so you’re losing out on some money (which you term the cost of a future replacement).
Thanks, Nate. Your points are good. I like the differentiation between “no value” and “no value for decision making”. The latter is what I’m trying to get at.
I’m not sure that’s it either. It isn’t that it has *no value* but simply that people attribute the face value. A simplistic example of this might be a savings bond. It has a face value, but that isn’t it’s true value. Many people would look at it and think “Deciding to stay home will cost me $900.” which isn’t true. But deciding to stay home will only cost you nothing in the event that you have no need to replace what you are walking away from. In this case, since you plan to go in the future, isn’t so.
Therefore the *cost* of walking away from your ticket isn’t the face value of $900, but the future replacement value which could be significantly more or less than $900.
I agree. This is my issue when people imply that a sunk cost has no value (either monetarily or for a decision). If you will spend money in the future (travel to London) because you don’t now, you have to factor that additional cost that you wouldn’t pay if you went now. Sunk cost doesn’t mean that it’s irrelevant.
As much as I love to travel, I understand when you have to stay home and take care of family stuff instead.
Not to pry, but has your mom had a tox report done? From her symptoms, she sounds like she’s being poisoned by something at her house that’s causing her memory to go (i.e. she gets better when she’s away)
Almost all of us can point to a place in time where we kept walking even though we knew we should turn around.
Not only are sunk costs something that are hard for us to think about rationally, there is also definite tendency to stick with decisions already made regardless of new information.
I wonder how many have stood at the alter and said, “I do” even though the knew they didn’t.
Congratulations on making a reasoned decision against the odds.
What happen to your 100k BA miles?
Ha. The 100,000 BA miles are in-process. On July 4th, when I booked the ticket, I didn’t have any of them. Now I have 50,000 of them. If I understand the terms of the deal correctly, I should have the full 100,000 in about a month. BA is running a deal right now where they’re offering half “price” fares when you use miles, so it’s tempting to book a flight with my miles. We’ll see…
I’m sorry you’re out the $900, but staying home really sounds like the best thing for everybody.
Yep, you definitely need more time to practice your Spanish. “Me gusta es mucho” should be “me gusta ESTO mucho. 😉
Ha! I knew I was venturing into dangerous territory by trying to include Spanish in the post. 🙂
Perdona pero asà suena raro. No se dice “me gusta esto mucho”, se dirÃa “esto me gusta mucho” o “me gusta mucho esto”, si es que usas el pronombre. “Mucho” es adverbio de “me gusta”, no de “esto”. Pero el pronombre ni siquiera es necesario en este caso. “Me gusta mucho” basta y sobra, porque JD viene de decir que esta aprendiendo español, y se sobreentiende que a ello se refiere al decir “me gusta”.
For those who didn’t get that: “me gusta esto mucho” is an odd construction. “Mucho” is the adverb for “me gusta,” therefore it should be uttered next to the verb it modifies rather than the pronoun (“esto”). Moreover, the pronoun in unnecessary in this case, as the verb already indicates the third person. It’s like saying “I like it, this”. You don’t need the “this,” we already know that “it” is what you like.
My gringo friends: I’ll teach you, if the money is good. 😉
So the “it” is just implied because of the third-person ending?
Short answer: yes.
Medium answer: the “me” also indicates that you are the object of the verb. The “it” (learning spanish) does the gustar to you.
Long answer: I said if the money is good! 😛
ha ha, “gustar” is such a freak verb, it confuses everyone, even native speakers can’t explain it.
While I’m an enemy of translating one language to another, look at this mysterious disappearance:
arm – disarm
connect – disconnect
trust -distrust
??? – disgust
where did “gust” go??
that “missing” english verb would be the functional equivalent of gustar. “like” is something you do, “gustar” is something that is done to you.
you don’t say: “i disgust margarine,” you say “margarine disgusts me”, right? if the verb “gust” existed you wouldn’t say “i gust pizza”, you’d say “pizza gusts me”. you see? gustar is like that.
me gusta la pizza
me disgusta el tofú
so instead of thinking “like=gustar” think “[dis]gust=[dis]gustar”. ha ha, yes, it’s a made up word but it should clarify how the verb works to the english-speaking mind.
we have both gustar and disgustar. you only have disgust. our “disgustar” also means to annoy, make angry, etc. so when someone is “disgustado” it usually means they are mad at someone, rather than grossed out.
all of these explanations may help you clarify some things (or give you a migraine), but language works mostly at a subconscious level. while explanations help relieve anxiety, the only way to learn is to practice in the right context (with people who speak correctly rather than reinforce mistakes).
Yes. You conjugate gustar based on the thing you are liking, as opposed to based on the person who is doing the liking. That’s why you throw the pronoun on the beginning, where you don’t with a lot of other verbs. “Me gustan las mujeres = I like the women.” You used the plural third person form of gustar and the plural of woman.
Okay, you guys are cracking me up with the Spanish grammar lessons. Thanks! 🙂
Actually, though, I understand the subject/object stuff with gustar. The thing that’s tripping me up is leaving the subject off. I understand that it’s me gusta, but I don’t know why I’m not using a subject. Nerdo seems to be saying that if I leave the subject off, it’s an implied “it”. How to express the subject in the sentence “I like it” or “It pleases me” is what I’m after. I know how to say A mi me gustan libros. (Although, who knows, maybe I have that sentence wrong too!)
Right now, I’m working on past tense. I’ve actually been reading the first chapter of Harry Potter, and it’s fun. I get most of it. And I’m learning new words — like mientras (as/while) and la lechuza (owl).
Leaving the subject off is a frequent thing in Spanish, since the conjugation (declension) already implies subject. You learn this in elementary school as sujeto tácito.
You say “Me llamo JD” not “Yo me llamo JD”
You say “Estamos reunidos” (we are gathered) not “Nosotros estamos reunidos”.
You say “Vine, vÃ, y vencÃ.” not “Yo vine, yo vÃ, y yo vencÔ
You ask “¿Quieres bailar?” not “¿Tú quieres bailar?”
These sentences have a subject and a verb even if the subject is not spelled out. It’s tácito.
If you’re talking about the lechuza, you could say something like this:
“La lechuza se echó a volar. Desapareció en la oscuridad y después de unos minutos regresó con un ratón en las garras. El ratón no daba señales de vida, y la lechuza lo depositó en su nido.”
You don’t have to say “la lechuza” or substitute for a pronoun every time. As long as you are on the subject of la lechuza, you can just imply the subject. Once you introduce another subject though, you have to clarify who did what to whom. In the example above, if you were to say “lo depositó en su nido” without naming the lechuza, it would be grammatically confusing if it was the mouse of the owl that carried out the action.
In English you always need the noun or pronoun because the verb conjugation lacks specificity.
Tu factura está en camino! Y con descuento! 😛
Thank goodness someone speaks Spanish!
JD, you can also think of “gustar” as “to please.” So “me gustan manzanas” becomes “apples please me.” It’s the same sentence construction.
It’s similar in Japanese, so knowing that has helped me here!! (where “suki” = “pleasing,” for those interested)
A great example of why sunk costs are irrelevant. It’s tough to read about that $900, but I’m sure it was even harder to walk the talk on sunk costs.
I think it’s quite impressive that you and Kris are so comfortable with each other that you were able to plan a trip like this. In reading about it, it kind of sounds like a vacation; I realize it will likely net you many articles and good connections for later, making it business-like. Still, I could see how that could be a tense situation with you leaving and her feeling regret of not going as well (I’d feel regret…they places you list sound awesome!).
As for your decision, it was a good example of sunk cost, but was just a rational decision as well. And the decision of a provider, a la Jimmy Stewart in It’s A Wonderful Life. I’m sure your family, friends and spouse all love you for it (as do readers! I like your articles best of the writers here). Just be sure to get back out there before the ol’ Savings and Loan gets too be too much 😉
I’m just wondering: Does the question of whether or not you still plan to go to London someday affect whether or not this is a sunk cost?
By that I mean, if you decide not to go, and let this ticket go to waste, but then nothing else in your life changes, then sure, it’s a sunk cost.
But if you still want to go to London, then by NOT going right now, you’re basically setting yourself up for an additional expense at some point down the road. That additional expense could be avoided if you take the trip now (since you’ll have already been to London, and thus won’t need to go again). So taking the trip now will save you $900 in the future, but skipping the trip will cost you $900 more someday.
Does that additional cost enter into the equation at all? Does that change whether or not it is a sunk cost?
JD, thanks for an well-reasoned insight into this type of decision.
But one thing jumped out at me – when you said Kris’ discomfort with you traveling solo “may sound unimportant, but it isn’t.” I’m surprised you felt the need to qualify that; why WOULDN’T your wife’s feelings about your extended travel be important? If anything, I think they need to be considered just as seriously as your commitment to your mom during this difficult time. I’m glad you are taking her concerns seriously; no need to explain that decision!
Karen, it kind of blows my mind that we’re this deep into the comments before ANYONE mentioned this little throwaway line. “It may sound unimportant”… to WHO? Someone without a spouse whose opinion and respect actually mean something to them? Sheesh.
Hm. This was a massive failure at me attempting to make light of the conversation from June. Back then, GRS readers gave me a lot of crap because they thought I wasn’t taking Kris’s wishes into account, that I was treating her as if she weren’t important. This isn’t (and wasn’t the case). So here I was trying to make a little joke. I didn’t do a very good job. 🙁
He said it MIGHT SEEM unimportant, not that it WAS unimportant – in fact, his sentence implies exactly the opposite.
JD, from that sentence I got:
1) It was important to YOU even if not to others, and
2) in the past, you (and the many readers who didn’t join in our discussion in the comments) may not have thought much about discussing your wife’s feelings, but now you have.
Personally, I felt proud of you for mentioning it, and I think the commenters above need to TAKE A BREATH.
Actually Kris’s nervousness about JD traveling alone do sound like the least important of the reasons to cancel the trip. I don’t mean that one shouldn’t take one’s spouse’s feeling into account of course! Just that the time for her to object was before the ticket was booked.
In a hypothetical world that was the only reason for canceling, the best response might be to seek ways to reassure her/make her more comfortable with the idea, not cancel the trip.
Well, sometimes you gotta do what you gotta do. Some things are just more important than others and have to get done. Might be good to get a refundable or transferable ticket next time though.
Refundable tickets are usually expensive enough that they’re not worth it unless you have a fairly high probability of your plans changing.
A little point about your Spanish: it is “me gusta mucho”, “me gusta es mucho” has no sense 🙂
Yes!
See, this is why I need the Spanish lessons. 🙂
Actually, my current plan for my time in Latin America is to spend time at a language school. I hear they’re a great way to learn. (I also hear, though, that you can get just as much out of going out and talking to the natives in whichever town you visit.)
I’m a beginner, but I’m loving the process so far.
Don’t go to a language school when you’re visiting a country in which that language is spoken! Spend your time trying to understand – and communicate with – those around you instead. You’ll learn faster and have more fun.
The best language schools have immersion course which are designed to REPLICATE the experience of being in a foreign country. If you’re already there, don’t hole yourself up with others who can’t speak the language either! You can do that anywhere!
I agree with your choice, but would have tried to negotiate with the airline over the ticket. Sometimes you can negotiate a non-transferable ticket and either book a new flight or pay to get it transferable and then sell it on a travel website. Of course, that’s not always the case but simply trying to negotiate makes you feel better about losing the money.
I did try to get something for the ticket, but no go. I think if I’d had more time to work on it, I could have managed to get a credit or something. But as it is, we made the decision so late that I only had time to hound the folks at the airport, and they really didn’t have any power to do anything.
I probably would have been sure Kris was 100% on board before I bought a ticket, but this is a sensative topic. I applaud you delaying until she’s ready for it, but be prepared for her not to be ready for you travelling by yourself for extended periods indefinitely too!
I am surprised with the EXTREME market drop in the last week that no posts have been made about it. Despite this being a plan ahead blog, I’m turning to you guys in the PF blog-o-sphere for a “hold the course, don’t panic” post and not finding it. All my index funds are low MER, regular deposit dealies, and I’m not selling, but it really sucks watching thousands of dollars of net worth vanish every day with nothing to show for it.
Let’s hope this is just a blip.
Hold the course! Don’t panic!
We’ve got a couple of posts in the works, Adam. But you already know what we’re going to say, right? You just said it yourself.
Thanks, you (and Leah below) make me feel better. It helps to hear it from people.
I have anywhere from 20 to 30 years before retirement (I’m 35) so I know to expect these kind of fluctuations. It’s just I was hoping March 2009 was the last such ‘correction’ I would see for a good decade or so. Foolish me!
I’m buying every time I get paid into my DC plan then another $5k on January 1st as soon as I’m allowed to dump more in my TFSA (Roth IRA in Canada).
Please keep us updated on your mother’s situation JD. I know it’s not readily PF related but many of us will be dealing with ageing parents and there isn’t nearly as much knowledge/sharing out there about this thing as there should be.
Adam, this can’t be the only pf blog you read?
Quite a few of the Canadian pf blogs have written about the markets this week as have a lot of American ones.
It’s pretty much all over the internet in fact.
I read a few others but mostly GRS and SD daily, they both have all ignored it. Which…seeing as the S&P 500 closed up nearly 5% today…maybe they are on to something. A few weeks of gains and we’ll be almost back to were we started in 2011.
I bought this week. Definitely hold the course and don’t panic. Two options:
1. The stock market will go back up. You’ll recover. You will look great if you invest more when it’s low.
2. The economy will collapse and cash will be worthless. Doesn’t matter how much you saved/didn’t lose by selling now.
I suppose there are some middle ground options wherein the stock market dithers around. But, ultimately, it will either go one way or the other. As long as you have a decent chunk of time until retirement, I wouldn’t worry about the market too much. Heck, my dad has an ideal 5 years until retirement, and he’s 90% stocks or so. He threw it all in when stocks were super low a few years ago, and he’s enjoyed the great gains. He figures 5 more years will give him time for a nice rebound.
Breathe! It may not be a blip, but it’s not the end of the world either. Just try to remember you haven’t “lost” anything – unless you panic and sell low.
Hang in there.
Maybe if you hit Gen Con again, a small meetup or coffee could be arranged!
Sorry for the tangent, but how was your one way ticket $900? Even flying from Portland, that is way too expensive. I’m seeing tickets for $400-500 from Portland to London.
Last year I flew roundtrip from Houston-> Barcelona, Rome->Houston for $800.
I’m just curious.
Kristin, where are you seeing $400 tickets from Portland to London? The cheapest fare I see right now is $922. I’d love to know how you guys are finding these cheap flights.
This is highly dependent on when you fly and when you book. JD was buying a ticket for August during July – peek travel time. The rates you see today are not the rates that were available a month ago.
Came here to say basically that. It depends entirely on when you are booking, and when you are flying. We priced out tickets in I believe February for travel to London from BOSTON for June and the price was just north of $1K per person for coach. Airline pricing is exceedingly strange.
And beware the ticket codes on some of the cheap flight sites–if I had to guess, JD’s ticket was probably one of that category, I don’t know the technical term but it’s sort of a ticket consolidation thing. Those are the tickets that are absolutely non-refundable, no exceptions. They aren’t really being sold by the airlines–I think there was an article on the WSJ Middle Seat blog that went over this in detail. Here’s the explanation for booking codes: http://en.wikipedia.org/wiki/Travel_class#Airline_booking_codes
Note that “Heavily discounted fares, commonly O, T, Q or W, will not permit cabin upgrades, refunds, or reservation changes, may restrict frequent flyer program eligibility, and/or impose other restrictions.”
It depends on the level of risk one is comfortable with–that’s all!
I know (at least in Canada) I can find “cheap fare” for under $500 to Europe. However, the taxes always work out to about another $500 making the total cost closer to $1000.
When people are posting about these cheap fares you are finding, are you including all the final costs?
Depends on when you fly and from where. Flights out of Houston are generally much cheaper than out of Portland for a variety of reasons. Consequently, I looked at flights from Houston to the UK a few months ago and they were all upwards of $1000 for round trip. Not unlikely for a one-way to be high and even that high from Portland. I seriously doubt that JD didn’t do the research, so I’m surprised by all the comments on the flight price. Years ago, I booked a flight from Houston to Ireland for about $850 four months ahead of my travel date. Much to my chagrin, two months later the prices were slashed in half. Airline pricing can be tricky and best price is all kinds of relative.
Oh man, this would kill me, but it sounds like you made the right decision. Is there really no way to change the ticket, even with a fee? A few hundred dollars fee is still cheaper than buying a whole new ticket if you can push it out 6 months or so.
Make this the third time you’ve tried to write about sunk costs and a bunch of people don’t get it and/or quibble about the definition…
I heard about sunk costs a few years ago and once I got it, it really changed my life. I find myself dwelling too much on the past and it was a concept that helped me stop beating myself up for past mistakes and choices and look to the future and what makes sense now.
I enjoyed this post and hope that someone else has a lightbulb moment with this concept as a result.
I also hope that you get your trip at some point in the future when you can truly enjoy it.
RE:“I don’t want to waste it,” I said. “But it’s a sunk cost. It’s not a factor in the decision. That money has already been spent whether I go or not.”–BUT if you go, you’ve only spent (made up number ) $2,000 on the ticket and gotten a trip. If you don’t go now, the trip you take in the future will cost double: the $2,000 you already spent and the $2,000 you’ll have to spend to go. I say go. All those things will not have been resolved before you get back anyway. A copy of a purchased plane ticket will get you out of jury duty and Kris can research the roofers.
lol. I would have said the opposite 🙂 Sometimes financial decisions aren’t about numbers at all. I’ve been on the receiving end of having to handle things while someone else is off “doing their thing”. (It isn’t fun.) True, I do regret some things I’ve given up — but I can live with that decision. I don’t think I could say the same about not being there for someone who needed me.
JD,
Loved the note on sunk cost. As that goes, you want to be very careful on choosing the person to install your roof. As you can see by my email address I work for a large roofing company and the biggest issues customers have with their roof relates to how it is installed. Fully checkout your installer and his credentials. Why try to save $200 on something that protects your $200,000 investment?
I rarely fly so if this isn’t possible, I get it. But can’t you sell that ticket at a major discount on Craigslist or something? You’d get at least a few dollars back. Can tickets be transferred in our New World Order post 9.11?
I was wondering the same thing, but there is a note from J.D. in the comments that the ticket was “non-transferable” which I guess means it can’t be re-issued in another person’s name.
The other question I had was whether the ticket could somehow be donated to an organization. But I guess non-transferable means that the airline just gets to pocket the money and resell the seat.
Considering the extra money the airlines are raking in these days by pocketing the FAA fees, too, they should have some good profits this quarter. Quick, buy up some airline stock at a bargain!
Airline tickets can never be transferred from one person to another, even if you buy the most expensive full-fare, fully-refundable ticket available. In fact, there is always a change fee (can be up to $150) imposed for something as simple as a travel agent mistyping the passenger’s name! And you could be denied boarding if your driver’s license says your last name is Smythe but the ticket says Smith, so you’d better get that ticket changed.
Good explanation of sunk costs. The next step would be to think about all the marginal costs… you’re saving X, Y, and Z by not taking the trip (sanity being one of them).
Of course, by taking the trip in the future rather than now, that’s also marginal cost… but you can cross that bridge when/if you come to it.
That is definitely bizarre that you can’t pay a fee to change the ticket… I didn’t know airlines did that! Usually they’re more than happy to let you spend $150 plus the additional cost of the new ticket to make changes on flights that haven’t happened.
I wonder if this is a case in which “just asking” (escalating up to managers) could get you some marginal benefit… Then you’d convert some of that sunk cost to marginal benefit for a future flight.
Regarding roof repairs:
If you have a visible leak and roofers are that far out I would suggest taking a look yourself to prevent further damage. If you know what to look for there is a very good chance you could find the leak and do a patch job. I am not a roofer, but over the years I have done more than my share of repairs.
Essentially you are looking for any break in the roofing material. It will likely be above, perhaps significantly the location of the leak inside. It might not be quite in line but water usually runs along the rafters, so it should be close. Especially look around protrusions like chimneys as they are often where breaks will occur and they impede water flow resulting in more water coming through holes in those locations.
Since you wouldn’t be looking to make it pretty you can usually patch it together with a bucket of tar or tar with mesh material. The mesh can be hard to find in handyman quantities but you could likely find some by calling a roofer and asking. Ours just handed us some when we asked. It’s messy but isn’t hard at all.
Oh, and make sure your roofer is properly insured. The reason there is a disparity in cost for roofers is often because the insurance is high and the corner cutters go without. If one of the workers falls off your roof and the contractor isn’t properly insured you are opening yourself to much badness.
Thanks for being honest about your life, we go through real situations and it’s helpful to know that GRSbloggers do too! (At least I know I can put you on a pedestal). Also it’s cool that you cared more about your relationship with your wife than an adventure, my husband and I like to call those decisions the hardest easy decisions to make. Adventure is out there!
I fly from Oregon to Heathrow a lot and I can vouch for the fact that $1200 roundtrip is a good average fare in the summer. You can get cheaper tickets, ie $800 roundtrip, but they require crazy things like waiting 12 hours to change planes in a German airport and the like. I needed to buy a one-way ticket for August this year, and the cheapest one-way I could find was $1400. (This was booking in April for an August flight.) So I booked a $1200 round-trip ticket, and I’ll use the unused half in the future. (I’m doing the first return by ship, and then I’ll go back by ship, and fly back.) But my sources tell me that you can inform the airline and just drop the unused half of the ticket. (They also tell me not to simply abandon the ticket once you’ve used the outward flight, as this gets you on the list of suspicious people.) Anyway, just to say that $900 for a PDX-LHR flight in July is a good fare.
Agreed. Definitely Do Not abandon your second journey of a roundtrip ticket to save money instead of buying a one-way without making massive apologies to the airline.
It is always tough to handle a change in plans. I hate it when life gets in the way. Now is not the time to be in England anyway.
Nonsense. Current events are shocking & depressing, yes, but they are only affecting a tiny area of the UK, mainly in big city suburbs which travellers are unlikely to visit anyway. Whilst not wishing to play down the damage the riots have caused, as usual the media are making things seem worse than they actually are.
If anyone has plans to visit the UK, don’t even think about changing your mind – it’s lovely here. And not even raining too much at the moment either! 😉
Phew, thanks Jim for the assurance. To some of us the show must go on. Will touch down next week and hopefully by then, London would be back to normal.
~Somsiah
p/s Great article on sunk cost, JD, and excellent responses on the said topic well by GRS readers.
Is anyone else wondering what the best selling book on the continent is?
Omg THANK YOU. I can’t believe you’re the first person to mention that!!
I couldn’t tell if he meant the Bible or if this was an inside joke or if there really is an unbeatable bestseller on Antarctica, lol, idk like Livingston’s journals or something.
🙂
I don’t know what the best-selling book on the continent is at the moment, but we’ll let it be Chris Guillebeau’s book next spring. I’ll settle for second best-selling. Or maybe if we’re there for more than a day, he can have the best-selling book one day, and I can have it the next.
Are you going to post about Antarctica on your travel blog as you plan it? I want to go too! I just got back from Australia which was my 5th continent visited. (Has anyone noticed that almost all the continents start and end with A?)
By definition, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. What JD may or may not spend in the future for the same item (a rescheduled trip to Europe) isn’t relevant today. The cost has already been expended, it cannot be recovered, and whether he will expend additional costs in the future is unknown. That “unknown” cost could, at best, be construed as marginal cost, where marginal cost by definition is the change in total cost that arises when the quantity produced changes by one unit. So, by changing the date and time of travel, additional cost will be incurred. Regardless, the sunk cost is still sunk cost.
Yes, the sunk cost is gone, and you articulated it well. But I think the disagreement stems from the concept of it having no bearing on the discussion. The COST has no bearing, but the VALUE does.
If we instead thought of it as a *free* ticket, say he won it in a raffle or something, I believe it has bearing on the discussion/decision if it is something he would replace in the future. In this context the decision is between using the ticket and paying in convenience now, or paying for a ticket for a convenient trip in the future.
Perhaps I am using the wrong terms, but I think that is the confusion lay people have when trying to talk about sunk costs. The money is gone and should not be associated with the current value (JD’s point), but the costs being sunk also doesn’t mean the item has zero value (which seems to be what JD said). The current value needs to be understood on its own.
So, by removing the expended costs from the equation (which really only serve to complicate the decision making process), you are weighing the value of what you receive from the ticket against the value of family and other obligations. When faced with those choices, irrespective of the sunk costs, JD decided there was greater value in his other obligations.
Or should I say, “greater value in attending to his other (unexpected) obligations.”
(What happened to the edit feature?)
I think part of the problem is that it can be really hard to figure out the value of something. “How much I paid for it” is a convenient number, and it’s hard to get past the anchoring effect it causes.
JD,
There are violent riots taking place in London as I type.
It’s probably a good thing that you are NOT there right now anyway…
*sigh* See my reply @74. There’s virtually no increased risk & no reason not to visit the UK. Well, it might rain next week… 😉
I just started reading “I Will Teach You to be Rich” as a personal finance refresher and Ramit mentions that most credit cards already have travel insurance, up to a certain amount. I’ve never had to look into this so I have no clue if this would help you recoup some of that $900 but if you booked with a card, perhaps it’s worth investigating.
“This may sound unimportant…”
Not to married people it doesn’t.
Kris must be a saint. If I said my wife’s discomfort at me being away for months “may sound unimportant,” I’d probably have to deal with some medical costs of my own. 🙂
I no sunken costs. I pay the race fee and buy airfare – and get injured, or meet with a family crisis. Choice just have to be made. Most of the time I can recoup a cost of the ticket as a hold for future flight on the same airline with about $150 change fee within a year. I never buy traveler’s insurance because they refund for medical reasons – like hospital or close to it. And I try to look at it from this perspective: money is spent, I can’t go, if I go regardless the circumstances, I will have to spend on car rental, hotel, food, gas…if I stay, I lost ticket cost, but that’s it, paid for in full, lets move on. It is hard, it doesn’t happen too often (every other year), but such is life.
Best to you dealing with what you have at hands.
Sunk costs are sunk costs, but here a couple of ideas:
1) You should be able to get out of this for jury duty. Here’s from Continental Airlines, might apply to others:
The other thing is a slightly bizarre idea: you could search on Intellius for people with your name who could either:
a) buy your ticket at a discount
b) accept it as a gift so it doesn’t go to waste
(I just did an Intellius search and found 5 people with your initials and last name in Oregon– spooky!). Unless your first name is highly unusual, you should be able to find potential matches.
And since you’re a public figure, the chance to come across as a stalker/scammer is highly reduced.
The jury loophole will probably only apply if he’s been called and selected, and is already serving on the date the ticket would have been used.
It would probably be easier to get the jury duty postponed temporarily. I can’t imagine they make people serve when they have vacations planned.
Just wanted to make a comment about the airline costs. Due to fuel and increased taxes, $900 in Peak Season (N. Hemisphere May – End of August) OW to London sounds extremely cheap (because OW fares are often higher than round-trip fares).
I use Kayak.com to look for most of my flights because they include the taxes in the totals that they show in the results, so you really know what you are going to pay for tickets. If you are on most airline websites, you can see fares for $450 each way but that’s before the taxes…which will take you right up to $900.
JD – good comment on sunk costs, once I understood them, it made sense to ignore them when making decisions. One thing I might check is to see when you rebook your flight, to see if they will allow you to use some portion of the ticket as a credit (usually up to one year). They MIGHT have a $250 change fee to change the date of the ticket…it can’t hurt to check but if you didn’t cancel the flight before it was supposed to take off, I don’t think you’ll be able to get the $$ as a credit. Airlines call this a “no-show” and if an agency doesn’t cancel the booking they can get fined by the carrier. However, if the flight has not yet departed, it would be worth it to cancel the reservation and then see if it could be used later.
Hi JD,
I’m a regular GRS reader but I don’t write in much–but I just wanted to say–I am *sure* that you made the right decision on this one. Especially since Kris was uncomfortable with it–that is a hugely important reason! You’ll be happier with yourself in the end when you put family first. Good luck with your roof and with your mom’s situation, too.
Meg
The sunk cost principle is really important and is a cornerstone of avoiding common finance mistakes.
However, your example is horrible and views marital advice in terms of financial terms, which….is yucky! I’d suggest that when Kris says “you’ve already bought the ticket” that she may not be talking about the financial aspects of of something akin to protecting an investment (for which the sunk costs argument would be a good response), but is probably talking like a person who cares about you and saying things like “despite all this crap going on, you should still think about your wants and dreams”. I’d suggest saying “thank you for caring so much” and not “let me tell you about sunk costs” 🙂
But…that aside, very good to bring up sunk costs, but I’d go for an example where people pile on more cash to spent cash in an effort to make-better money already “sunk”. Thanks for the great site. Good luck with Kris 🙂
Thanks for your honesty JD.
I have been reading all the new comments to your post “A place for Mom” I think a permanent blog is really necessary for this subject. Can you find someone to start one? I am at a loss to figure all this out even though I am more than half way into the whole process. I just hate insurance companies.
But we have the best health care in the world and we don’t deny it to anyone! Yes???
…
I agree 100% with AnnW’s post. This is a nightmare that requires a support group.
Actually going through similar things in our family I have found that there are a lot of resources, but they are hard to find because it is a closed community. You come in not knowing anything and the system is organized in such a way that you need a guide. It is tedious and frustrating and it doesn’t help that you come in stressed and emotional.
It isn’t a perfect system by any means but I feel the need to give credit where it is due.
Thank you for a very interesting concept – I hadn’t come across “sunk cost” before, but I find it a useful idea. It’s gone, so forget it.
Sorry to hear about your Mom, it sounds to me as if you made the right decision to cancel. Also, I’m sure you’ve heard about the riots in London and other main cities. Not the best time to visit. However, I can guarantee there would be no riots on Hadrian’s Wall! (Unless by companies of Roman Soldier ghosts.) But the weather here is going down the tubes as of tomorrow. The Roman Wall is no fun in the rain, but it is definitely worth seeing at some point.
(From a completely biased Northumbrian!)
There was a post a couple of months ago on GRS where JD’s travel idea came up and it came along with the idea of selling the house because the house had issues. In the post, it was decided that JD would travel alone since Kris had a good job and didn’t want to go. I’m paraphrasing here, but most of the comments were not exactly a high-five for J.D.’s decision. I’m sorry that the plane ticket price was lost money but I’m not so sure that the whole idea of travelling was meant to be in the first place. For me, I have learned that everything that I do and decisions that I make affects SOMEONE. It can affect my family, a co-worker, boss or my neighbor. And sometimes, I have to wait for the final answer to reveal itself. Patience really is a virtue.
I hope things go better for you, JD, and things work out for everyone involved.
The concept of Sunk Costs really relates back to the larger concept of “Opportunity Costs.” When ever we make a decision we are, whether conscious or not, weighing the lost opportunities associated with the choice to do or not to do _____. The personal example that JD brings up raises the question of what are the lost opportunities involved if he decides to use his plane ticket or not. One thing to note is that opportunities are not always positive and a lot of the time it is an “opportunity to avoid” something negative. So for example, If JD did decided to go on the UK trip it would mean that he would delay working on his mothers situation (Financial and family consequences) delay getting his roof fixed(risk of future damage), missing a jury summons (Legal risk of not showing up), risk damaging his relationship with Kris (need I say more). A lot of the potential costs do not have a direct dollar value; but how do you put a dollar amount on a relationship?
So in considering the potential costs of going on the trip, vs. the $900 in Sunk Costs it seams a pretty clear cut decision.
“If I flew to England, I was out the $900. But if I stayed home, I was out the $900 too. This is the purest example of a sunk cost I can imagine!”
Yes, but if you fly to England, you’ve used the ticket, but if you stay and then go later, you will be out a total $1800 because you have to buy another one.
I agree that this is a good example of a sunk cost, and a good example of making decisions based on the real situation, but it’s not accurate to say you’re in the same position whichever choice you make.
I appreciated seeing that you’re taking your wife’s feelings into consideration and stating that they are important. There are many relationships where this doesn’t happen (examples are everywhere) and it’s nice to see examples where it does happen.
I also appreciated your explanation of the sunk cost.
J.D. This is a case were I say hang the 900 bucks. Your Mother needs you, your family needs you and you need to attend to matters of your home. I know you are useing this situation for GRS conversation, but it shouldnt even be up for discusion, stay home and take care of business.
Good post. Something to think about and something that I can extend to stocks, houses, and other assets and purchases.
In the same situation I could see myself making the opposite (and in my opinion wrong) decision. Being miserable and worried about your family wouldn’t have put any value back into that sunk cost.
Good post, something for me to think about.
If I understand correctly, a $900 ticket would have got you to London, but not back.
So using the ticket would automatically incur another cost for a return ticket, at some point.
Granted, if all went well, you could shop around and get the best deal back, perhaps being flexible with departure dates.
But if you go under uncertain circumstances and then end up having to return hastily due to a pre-existing problem flaring up, you would then have to fork out whatever they were asking for a return flight (because of the urgency), so you’d be out of pocket at least another $1000 (or have to throw money at a problem to avoid having to come back home to sort it out). And who’s to say that wouldn’t happen within a few days of your arrival? In which case you’d have “sunk” over $2000, and not seen London/Europe to boot!
Hope things smooth out quickly
JD, you made the right decision regardless of how much the ticket cost. Besides,
$900 is pocket change for an AA+ list blogger such as yourself. 😉
Being a smart money person, I am appalled that you did not take out travel insurance. You lost almost $1000 you could have had back in your hand for next time. It was a sunken cost if you had gone, but it would have been value for service in that case. Who reads this blog that can be so cavalier about losing $900 out of debt or not??!!?? It is so worth it to have travel insurance with ridiculous airline ticket costs much less any non-refundable hotel or other travel charges that might be in the trip I can’t take at the last minute. And it does not have to be a family crisis. YOu can get coverage for everything up to and including changing your mind about taking the trip for any reason.
There is no way an insurance company would offer reasonably priced “I just changed my mind” travel insurance. The moral hazard is too great.
I love your blog, J.D., but, judging from your little snippet of Spanish, you will need more than 8 weeks to prepare for your Latin American trip! Best of luck!
Did you try getting the taxes and fees back? From what I recall, the airline only has rights to the actual fare, but not the taxes and fees associated with your flight. If you don’t fly, you shouldn’t be liable for landing fees, security fees etc. Considering that your ticket was cheap, a good amount of it was probably additional fees. Try googling: Get Tax refunds on cancelled flights from airlines. Good luck.
Sometimes a sunk cost does still figure into the decision. E.g. if you are going to do the activity sooner or later anyways, then the fact you have a nonrefundable ticket for “sooner” can be treated similarly to a discount.
$500 is more than half the price of the ticket, so you were better off “self insuring” (given that there was less than 50% chance of cancellation.)
I wonder if people’s seemingly irrational treatment of sunk costs is related to their seemingly irrational treatment of FREE stuff.
European and US airlines have a different business model. In Euope you fly what you paid for. That means an inflexible ticket is inflexible. They usually don’t even let you take an earlier flight when you arrive at the airport early. They also don’t upgrade passengers on the basis of empty seats in higher classes, but only when they don’t have enough seats in lower classes.
JD, two remarks regarding BA… BA charges fuel surcharges and taxes in award tickets. This will be several hundred dollars no matter whether you fly First or fourth class (coach). That makes coach redemptions less interesting.
Second, there are some major changes coming this November that might drastically devalue your miles unless you use them to book tickets to Europe. Details are not yet published, but for tickets to South America or Asia you might have too book early.
I remember a study on sunk costs — they interviewed people outside a theatre and asked them if they lost their $20 ticket while in line, would they spend another $20 to replace it? The majority said no. Other patrons were asked a similar question — if they hadn’t yet purchased a $20 ticket, and discovered while in line that they’d lost $20 from their wallet, would they still buy the ticket? Most folks said yes. Two different emotional reactions when presented with essentially the same financial decision.
For me, it depends on whether the sunk cost is a discretionary or necessary thing, and how my budget would be affected — if you absolutely needed to go to the UK, you either use your ticket today or it costs you twice as much to go on a different date. So instead of being a $900 stay versus $900 go decision, it ends up being a $900 go today versus $1,800 go tomorrow. If that’s a budget-breaker you have to go today.
I have played Warcraft for 11 years with a couple of brief (2-3 month) interruptions.
But, realizing that the game is so addictive, I decided to invest on it.
So I bought one hundred shares of Activision / Blizzard back in late 2009 at roughly $11 a share. It is now $64 a share.
That is the positive. The negative is that when I look at time played, I have spent nearly two years online (15,000 hours) that I will never get back. But then again, I had a lot of fun during those 15,000 hours.