Today’s economic topic will be the Sunk Cost Fallacy. A sunk cost is something you’ve spent money (or other investiture) on and you cannot recover said money (or investiture). The $4.50 you spent on a latte this morning is a sunk cost. So is the $90 you spent on shoes last month. And, oddly enough, so is the “free” doughnut you ate this morning, because even though it was monetarily free, it wasn’t calorically free – you “paid” in terms of calories for the day and, assuming you weren’t near-bulimic afterwards, you cannot retrieve those calories. (And even if you did attempt to purge, you are still dealing with a sunk cost).
Generally speaking, it doesn’t make sense to take into account sunk costs when making a decision for future investiture – e.g., whether or not you spent $4.50 on a latte should not impact your decision as to if you will be buying a latte later today. You’ve already spent the money and can’t recoup it, so factoring in the presence it *would have* made in your budget is specious, you need to look at where your budget stands now. But humans don’t tend to work this way due to loss aversion. They tend to frame an overall project to include what has been spent as well as what will be spent (time, effort, etc.) and look at it on the whole rather than what is left. One of the oddest presentations of this I am most guilty of, as are, I suspect, many of my friends: the Sunk Cost Doughnut.
I seem to be focusing on doughnuts, and this is because I had one today. I am supposed to be watching my weight (I’m currently watching it nudge up) and today someone (Ms. Krieant, to be exact) brought in Top Pot Doughnuts, which may in fact be my favorites. I have a workout buddy who insists that you can eat whatever you want as long as you work out enough and he is right, but he is also 25 and has been through OCS and it’s not enough for him to do pull-ups, he has to do them with a 50lb-weight strapped to his stomach. His and my mileages tend to vary.
At any rate, today I ate one (1) Chocolate with Rainbow Sprinkles doughnut, at a caloric cost of 510 calories. That would be 1/3 of my supposed day’s calories, and so it is really, really hard not to take into account my sunk cost (doughnut/510 calories) and say “well, I’ve screwed up the diet today, so I will just start again tomorrow”. On the whole this is NOT logical because in theory I can pay attention to my caloric budget and be “good” for the remainder of the day, and only come in a “little” over budget. If I frame my caloric choices in light of the Sunk Cost Doughnut, though, and eat whatever I want, I would come in drastically over budget.
A suggested method by economists is to evaluate future costs and avoidable future costs to establish the true prospective cost for the day (E.g., I must have some form of dinner (future cost), it probably shouldn’t include bread or fat (avoidable future cost)). And so, as I use my “MyFitnessPal” app and truthfully admit to my 510 calorie digression, I sit here re-evaluating my planned caloric expenditures for the day.
They’re serving birthday cake down the hall.
Bobbie Conti 