Tag: sunk costs

Braveheart — We Didn’t Get Dressed Up for Nothing

In this scene, the Scottish army is waiting to fight the English army. William Wallace (Mel Gibson) is going to “pick a fight” and make sure that the nobles from each army don’t negotiate a peace. His fellow leaders are in charge of passing out weapons. When asked what to do they remark, “we didn’t get dressed up for nothing.” 

They are falling prey to the sunk cost fallacy. Just because they’re all dressed and ready to fight doesn’t mean that is the logical thing to do. The soldiers are not using effective marginal analysis to determine whether fighting is the next best course of action.

Thanks to Luke Starkey for the clip and summary!

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Super Troopers — Sunk Costs [NSFW]

Some young drug enthusiasts are driving while under the influence and consider a fairly interesting application of public goods and private ownership. Eventually, they hear the familiar sound of a police car behind them and scramble to hide the evidence of their crimes. The guy in the backseat eats a lot of drugs in an effort to hide their illegal goods. The guy in the front seat points out that he ate $130 worth of drugs and then lets him know that he can pay him whenever. This same attitude isn’t taken when the drugs are thrown out of the window, which would have been the alternative. Just because the guy in the front seat had paid $130 for the drugs doesn’t mean that’s justification for getting reimbursed. A sunk cost is a cost that is unrecoverable and shouldn’t be considered when making decisions.

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Frozen: Let It Go

Frozen is the story of two princesses, Anna and Elsa. Elsa has magical powers that she is forced to hide her entire life until her coronation ceremony. Elsa flees to the cold, remote mountains and sings “Let it Go” after finally accepting her magical powers and letting go of the pressure to hold back her true self. When she sings “the past is in the past”, it’s a reminder of the role of sunk costs in the decision-making process. Sunk costs should be ignored because that time/energy/money cannot be recovered in the present.

Thanks to Matt Rousu for the clip.

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Life in Pieces — Discounts & Sunk Costs

 

Tim tries to host a guys night and things don’t seem to be going his way. Beyond the awkwardness of just the two of them, the big pay per view fight lasts only a couple of seconds. While the two did get to watch the fight, which had a knockout, it wasn’t quite worth the hundred dollars they paid. Tim notes that he may be able to turn it off and get his money back. With a lot of experience goods, it’s not necessarily the actual outcome of the action that people care about. Tim and Matt did see a fight, so why is he so focused on getting his money back?

A second quick econ line occurs later when they sit down for dinner. Even though Tim isn’t eating any tacos, he notes that the cook is cheaper since he expects Matt to eat 25 or 26 tacos. This form of bulk discounting represents second degree price discrimination. With this pricing mechanism, the hope is to induce customers to purchase more than they would have (law of demand) even though making an additional taco doesn’t have the added cost of another cook.

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Brooklyn 99 — Boyle Can’t Quit

 

Boyle’s new food truck isn’t going well at all. He’s losing a lot of money and he can’t seem to change things around. Jake suggests Boyle does what he’s good at and just quits, suggesting that Boyle’s the average price Boyle charges for food is below even his average variable costs. Boyle took out a huge loan and he needs to help pay it back, which may mean that his prices are between the average fixed and average variable costs, in which case he should keep producing even though he’s losing money.

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Kyle — Playinwitme feat. Kehlani

One of the fun topics of decision making is to ask students if they have ever been stuck in a relationship they weren’t happy with, but they continued dating that person anyway. The most common response to why this occurs is that the students have invested a lot of time in the relationship and they don’t want to see it wasted. This example is an introduction to the irrational decision making people often go through because of their resiliancy to focus on sunk costs when they should be ignored. Kyle and Kehlani’s new song goes through the same tough decision because both feel like they’re being played with. Kyle and Kehlani both ask:

Girl, why are you playin’ with me?
I don’t got the time for that
Might need me a refund, haha
I’ma need that time back

Since neither can get their time back, if they are unhappy or anticipate being unhappy in the future, they should rationally move on from each other.

I like to use Old Domion’s song, Break Up With Him for the same lesson as well.

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A League of Their Own

 

Dottie decides to quit right before the World Series, and her coach isn’t too happy about it. One of the most salient topics taught in a section on behavioral economics is the idea of ignoring sunk costs. When things get boring or tough, a rational agent may decide to quit. Dugan believes that baseball is a great separating equilibrium and that it shows who’s tough and who isn’t. If baseball were an easy game then the it wouldn’t be a beneficial signal to everyone watching.

Thanks to Jose Fernandez for the reference!

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Chris Rock — Break Up

Chris Rock discusses his recent divorces and encourages couples in love to make sure they hold tight to one another. He does warn that if you’re thinking about leaving then you should probably leave immediately, perhaps after the show. A lot of people stay in relationships they don’t like being in because they’ve been together for so long, but that’s just irrational!

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King of Queens — A Wasted Tombstone

Arthur bought a tombstone a while back in order to save money and the salesman assured him that he would most likely be dead by 2000, so he pre-printed the “19” on the tombstone so that they would only have to fill out the end of the year. Fast forward to 1999 and Arthur finds out he has 8 months to die or else his tombstone will go to waste. This clip is a succinct enough clip to teach about sunk costs since the price of the tombstone has already been paid and Arthur wouldn’t be able to get his money back.

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Ryan Hamilton — Canceling a Gym Membership

Ryan goes through the steps he had to complete in order to cancel his gym membership. By requiring all of the additional steps to opt out of the membership, it decreases the likelihood that individuals will actually cancel their membership and instead pay the monthly fee despite not wanting the service. Ryan even discusses how he’s fallen victim to the sunk cost fallacy because he walked by his gym on the way to purchase envelopes for the letter, but he was already “in too deep” to stop by and cancel in person.

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