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Author: yeilBagheera Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308858  
Subject: Sunk costs Date: 11/10/2012 6:29 PM
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That's the business term for a thinking trap that catches many of us.
I see it in my thoughts and I read it here.
Maybe I realize I'm thinking "I should keep that coat, because I spent more than $100 on it" --
but here and now, the truth is it doesn't matter how much I spent on it, because I can't change that decision.
Any decision I make now (to clean, use, keep, donate, sell) needs to be based on current factors.
And if I decide to sell it, than my accounts today will reflect some income today.

[of course, when I'm contemplating my patterns of behavior, it's fair to judge whether I buy the right things and to count how many coats I have accumulated)

Here's a friendly story about what I'm trying to describe
http://www.getrichslowly.org/blog/2011/08/09/sunk-costs-and-...

Economists say things like this:
"costs that have already been incurred and that will not change with any of the specific choices now at the margin should be irrelevant to one’s decision"
http://www.thefreemanonline.org/headline/sunk-cost

YeilB
looking at belongings with clear eyes
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Author: ed1007 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306412 of 308858
Subject: Re: Sunk costs Date: 11/12/2012 12:43 PM
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If he postpones his trip the cost of his trip will change. If he ignores the cost of the ticket he purchased then when comparing the two options go now or go later, the costs of the two options will be different. As a result the cost of the plane ticket does show up in the consideration of when to go. The cost of course is only one part of the decision but for many people and in many cases it is the deciding factor.

I think the proper way to handle this from a purely financial perspective is to calculate the cost of going now, NOT including the plane ticket, and compare that to going at some point in the future including the NEW travel he would need to purchase. Of course is money is no object then the sunk cost would not have mattered in the first place.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306413 of 308858
Subject: Re: Sunk costs Date: 11/12/2012 12:54 PM
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Most plane tickets are non-refundable, but charge a fee for change. The difference in the cost of the plane ticket may be the change fee, and not the entire cost of the plane ticket.

If he can't afford to lose the plane ticket, then travel insurance should have been purchased. I don't buy travel insurance for travel in the US because the loss through non-use of the plane ticket is an acceptable risk and my health issue applies everywhere in the US.

For travel in the US, change fees can be close to the cost of the flight. I have paid change fees a few times, and that is the risk for buying cheap tickets.

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Author: Jacketfan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306419 of 308858
Subject: Re: Sunk costs Date: 11/13/2012 3:25 PM
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If he postpones his trip the cost of his trip will change. If he ignores the cost of the ticket he purchased then when comparing the two options go now or go later, the costs of the two options will be different. As a result the cost of the plane ticket does show up in the consideration of when to go. The cost of course is only one part of the decision but for many people and in many cases it is the deciding factor.

I think the proper way to handle this from a purely financial perspective is to calculate the cost of going now, NOT including the plane ticket, and compare that to going at some point in the future including the NEW travel he would need to purchase. Of course is money is no object then the sunk cost would not have mattered in the first place.


But the only decision on the table was to go now, or not to go now. There is no requirement that he goes to London at all (though he probably will.) So I think he applied the concept of sunk cost perfectly. And more importantly, it would be a hard thing for most people (my wife especially) to do, that being ignoring the sunk cost. Me, I'm pretty good at putting decisions already made where they belong, in the past.

v/r
Tom

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Author: yeilBagheera Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306420 of 308858
Subject: Re: Sunk costs Date: 11/13/2012 3:29 PM
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vkg wrote
"can't afford to lose the plane ticket"

and this is the point where a cold-hearted economist says, "That cost has been incurred." You don't have the choice to get the $ back, whether you go on the trip or not.

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Author: Windowseat Big funky green star, 20000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306421 of 308858
Subject: Re: Sunk costs Date: 11/13/2012 3:39 PM
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But the only decision on the table was to go now, or not to go now. There is no requirement that he goes to London at all (though he probably will.) So I think he applied the concept of sunk cost perfectly. And more importantly, it would be a hard thing for most people (my wife especially) to do, that being ignoring the sunk cost. Me, I'm pretty good at putting decisions already made where they belong, in the past.

There are also costs he didn't include. If he went to London he would have the additional costs related to travel; hotels, food, travel within England and so on. Those also have to be factored into the equation. Does he go and get the benefit of the sunk cost while incurring new costs, or does he stay home and not get the benefit of the cost. When discussing sunk cost, in terms of getting the value of it, should additional expenses be considered?

Nancy

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306422 of 308858
Subject: Re: Sunk costs Date: 11/13/2012 5:18 PM
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Windowseat:

{{{But the only decision on the table was to go now, or not to go now. There is no requirement that he goes to London at all (though he probably will.) So I think he applied the concept of sunk cost perfectly. And more importantly, it would be a hard thing for most people (my wife especially) to do, that being ignoring the sunk cost. Me, I'm pretty good at putting decisions already made where they belong, in the past.}}}

"There are also costs he didn't include. If he went to London he would have the additional costs related to travel; hotels, food, travel within England and so on. Those also have to be factored into the equation. Does he go and get the benefit of the sunk cost while incurring new costs, or does he stay home and not get the benefit of the cost. When discussing sunk cost, in terms of getting the value of it, should additional expenses be considered?"

The author at teh link may have highlighted sunk costs well, but he was not making a decision on economics as I understood it - S.O. not ready for him to travel, mother's living arrangements and financial mess, etc.

Regards, JAFO

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306423 of 308858
Subject: Re: Sunk costs Date: 11/13/2012 11:23 PM
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But the only decision on the table was to go now, or not to go now.

I read it as go now or delay for 6 to 8 weeks.

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Author: exeter17 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 306451 of 308858
Subject: Re: Sunk costs Date: 11/18/2012 9:03 PM
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Kinda like the banks that asked Joe Taxpayer to help protect money washed away in poor loan choices and executive bonuses?

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