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mattbellRationally speaking, most people (myself included) know they should ignore sunk costs, but it's hard to actually implement this philosophy day-to-day. I think the problem is that most people's money philosophy is more intuitive than rational... when we think about a purchase decision, we usually get a gut feeling about it and act based on it. As a result, despite thinking repeatedly “this is a sunk cost, I should ignore it”, I still have a strong impulse to retroactively justify a purchase by making use of it. I want to integrate the idea of sunk costs into my intuitive money philosophy.
A few years back I noticed that I had a problem with stinginess toward purchases for myself, wherein I would waste my own time or put myself in discomfort to save a few bucks. I mostly cured myself of that intuitive urge by deliberately forcing myself to buy nicer items than I would normally get when I knew I could afford them. Doing this for a while got me to devalue money relative to what I gain from spending it, which is the intuitive cost-benefit tradeoff that goes through my head every time I think about buying something.* This effort has been particularly successful with regard to food – since my food is used to make more me, it's worth paying for the good stuff. Ditto for preventative care.
So how can I apply this to learning to intuitively ignore sunk costs? Based on my prior experience, it seems that making a large number of decisions under the new rules in a short time span is what changes the intuition. However, simply buying a bunch of things I don't need and then not using them seems like a rather silly and ineffective approach. I think the solution is to look at things I've bought as options rather than obligations.** I can fortunately practice that mode of thinking all the time and thus hopefully change the habit more quickly.
*On a side note, I still have trouble spending money on things that I know are complete rip-offs, even if they still satisfy the cost-benefit tradeoff. This has been made abundantly clear by my interactions with third-world cab drivers. If someone is trying to charge me 5x the going rate for a ridefor a cab ride, I will tell him to shove it even if there are no other cabs nearby and the actual amount we're talking about is just a couple of dollars. It's more of an ethical decision – I don't want to reinforce that sort of behavior.
**I've recently noticed that very financially well-off people I know tend to think this way.
A few years back I noticed that I had a problem with stinginess toward purchases for myself, wherein I would waste my own time or put myself in discomfort to save a few bucks. I mostly cured myself of that intuitive urge by deliberately forcing myself to buy nicer items than I would normally get when I knew I could afford them. Doing this for a while got me to devalue money relative to what I gain from spending it, which is the intuitive cost-benefit tradeoff that goes through my head every time I think about buying something.* This effort has been particularly successful with regard to food – since my food is used to make more me, it's worth paying for the good stuff. Ditto for preventative care.
So how can I apply this to learning to intuitively ignore sunk costs? Based on my prior experience, it seems that making a large number of decisions under the new rules in a short time span is what changes the intuition. However, simply buying a bunch of things I don't need and then not using them seems like a rather silly and ineffective approach. I think the solution is to look at things I've bought as options rather than obligations.** I can fortunately practice that mode of thinking all the time and thus hopefully change the habit more quickly.
*On a side note, I still have trouble spending money on things that I know are complete rip-offs, even if they still satisfy the cost-benefit tradeoff. This has been made abundantly clear by my interactions with third-world cab drivers. If someone is trying to charge me 5x the going rate for a ridefor a cab ride, I will tell him to shove it even if there are no other cabs nearby and the actual amount we're talking about is just a couple of dollars. It's more of an ethical decision – I don't want to reinforce that sort of behavior.
**I've recently noticed that very financially well-off people I know tend to think this way.
