The second time I ran into sunk cost problems was last night for Mardi Gras. We went to Lodge Bar (kinda lame...sorry to anyone who loves that place) and they were charging $5 cover for everyone. Now, we just thought it was ridiculous because who wants to pay $5 to get into a smelly bar? We shortly figured out it was 18 and older ...but they should have just charged the 18-20 year olds who werent going to be able to purchase drinks. Regardless, my friends and I paid (even though I didnt even want to go in) and insisted that since we paid the $5 we better not leave and get our money's worth. *LIGHTBULB GOES ON* Why should we stay at a bar that smells and has creepy old men there when the cost is already down the tubes? We can't get our money back. Why would we torture ourselves staying in a place that made us more miserable and sweaty by the second? RiGHT? yet, most people dont look at things that way. Good thing I have a good grasp on sunk costs and convinced my friends to leave the bar and go down the street to Brothers. It turned out to be a swell night after the sunk costs monster left everyone's minds.
Wednesday, February 25, 2009
People dont understand Sunk Costs
So, when thinking about what to post for this sweet blogger website, I struggled to figure out what economic things I face in day to day life. Well, I have come across two instances in the past few weeks that have really made me think about our economics class. The first one I want to mention is the idea of sunk costs and going to class. My mom always gets really upset with me when I casually mention that I am going to skip a class on a particular day. Yes, I do realize that going to class is probably going to enhance the performance on your next test or will help you clarify material; however, IT IS A SUNK COST. We pay tuition at the beginning of the quarter, so if we don't want to go to class...why should we? It's not like we can get our money back! Yet, students still insist on going to class even though most end up sleeping through it. I guess they just "feel better" by saying they went to class. If it is sunk, then dont go if you don't want to. Especially if you are doing well in the class already...who needs class? haha.
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Coincidentily, I went down to lodge bar for Mardi Gras as well. Originally I felt that going downtown on a Tuesday was too much. I got a phone call from my buddy who works there and he said he would send the bus to come pick me up at my house, no cover, and the bus dropped me back off. First, I was definitely not going to lodge, then simply because the costs to go dramatically declined, I chose to go. Sunk costs for classes are completely different.
ReplyDeleteClasses such as history, english, writing, philosophy, and other analytical arts classes offer new information and an environment for thought and discussion. With the attendance of each class you retrieve the value you have already spent. Classes like math, business, or this econ 501 class are not good examples of retrieving value. These classes are logical and you don't really need a profesor, especially not a confusing profesor. Being able to argue with a fellow classmate in a philosophy class is a luxury people don't have. My friends are idiots, and I would have to pay to go to some discussion group. When you go to these classes, you may actually receive a greater value than what you orginally paid. You may learn something that wasn't on the syllabus. It is like going to lodge, paying the cover, and then meeting someone that is just flat out hot. You can't put a price on that. That is the reason people pay covers, thats the reason you paid the cover. I feel skipping class creates the sunk cost, it is excess spending, waste. CSCC would be more appropriate.
The thing about “Sunken cost” may be rather more complicated than it may seem.
ReplyDeleteThis is in the case when the cost is paid before the product or service has been delivered. In the case of economic theories, it is assumed that the exchange of money and product or service is done at the same time.
However, in the case of tuition, the service is delivered after the tuition is paid.
So, what happens in this situation? The money is paid but the services have not been received. So this situation can not be simply classified as a decision concerning “Sunken cost.”
In H/w, there was a about movie tickets. In this case, because the tickets were exchanged, it could be stated that the exchange of money and good occurred. And therefore the ticket cost could be classified as “Sunken cost.”
So, does this make any sense?
Maybe or maybe not.
However, if we were to used the definition of “Sunken cost” in decision making, the proper definition of “cost” must equally apply.
This is all a matter of definition.
If the good that the tuition was exchange for is defined as the right to attend classes than it could be a “Sunken cost” because the exchange was made.
Emily, I agree with you on every single thing you said on this post. It is our choice whether or not we go to class and how well we do (I think) depends on our intelligence and study habits. In econ 444 we actually ran a regression a couple weeks ago about students decisions on whether to go to class or to skip and the outcomes of their final grades. The whole class believed that skipping class would have a negative correlation on the students final grades, because obviously if you don't ever go to class you are not "learning". As an avid skipper (with a pretty good GPA, i might add), I had hopes they would be wrong. It turned out that skipping class actually had a positive correalation on students final grades! And there you go. There could be other factors to this, (such as feeling like you need to study your butt off when you realize you haven't been to class in three weeks and your final is in three days), but I have come across many more people in my four years as an undergrad who are skippers and get good grades than the ones who go to class just to make themselves feel better, and then actually getting good grades. One of my best friends never misses class because she feels bad when she does, but then admits to playing Sudoku for the entire two hours(she is really the one with the sunk costs problem). I guess it really just depends on the person, but I agree with you.
ReplyDeleteThe bar sunk costs is a whole other story. I am just really glad your lightbulb went off before it was too late. Not only would you have the sunk costs of just getting into the bar, the costs would have continued to sink if you would have stayed there. Maybe Broyles met someone flat out hot @ lodge bar, but us girls have much worse luck at places like this (creepy, old men). You would continue paying for drinks after the fact that you also had a $5 cover (down the tubes). NO WAY.
So your friends should be really happy they have a friend like you who knows about sunk costs to make these decisions on a night out. It could have ended in misery for everyone.
I agree with Broyles on the skipping class as a sunk cost. When you skip a class you really have no idea what you could have learned that day. Your right you might have known everything or not get anything out of it. You also could have learned something that would be very valuable to you. It could be something that changed your life or have been worth more to you than the actual cost of the course. I believe that for a sunk cost to be truly sunk, you can not possible get any more value out of it. Like advertising money, you used it to its potential, but class you truly never know what that day brings.
ReplyDelete