Sunken Costs

Jason Cohen over at the blog A Smart Bear recently wrote about the economic theory of Sunk Costs. Ironically, I recently had a long discussion with some friends about sunk costs because of a situation I found myself in last week.

Back in December, I had registered to attend a 2-day workshop here in Chicago. At $1300 for the workshop, the cost was non-trivial. Once the first day came, I found myself having some severe issues with the workshop. The reasons are not important. Suffice it to say, I was contemplating leaving by the middle of the first day, however, I found myself limping to the end. The next morning, I had a choice: I could go back for the second day or skip it and do actual work. Now, most people would think I’m nuts for wanting to skip the second day. After all, that day cost me $650. I should get my moneys worth right?

Wrong

That money is gone. It’s not coming back. Going back for the second day would have a ) made my miserable and b ) cost me more money in lost work that I could have done since it was during the week. Let’s say I can make $1000 a day. Not only would that second day cost me the day, but it would also cost me another $1000. Not recognizing the true cost of things by including the opportunity cost is a grave mistake.