ECON 20 Lecture Notes - Lecture 31: Sunk Costs, Cognitive Bias, Ebay
3 Dec 2020
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Thinking irrationally about costs two common mistakes people make in thinking about costs: failing to ignore sunk costs and undervaluing opportunity costs. These mistakes result from examples of what psychologists call cognitive biases. These are systematic patterns in how we behave that lead to consistently erroneous decisions. Example: have you ever sat through to the end of a terrible movie just because. A cost that has already been incurred and can"t be refunded or recovered. Such as the cost of a ticket, once you"ve begun watching the film. It makes no sense to consider sunk costs when weighing the trade-off between opportunity cost and benefits, but people do it all the time, because we find it hard to accept our losses. It"s a fallacy to consider sunk costs in your decision (consider following) The option of watching a terrible movie, even if it"s free, is not an attractive one.
