[econoclectic] EclectEcon: Irrationality and Sunk Costs

[Email subscription to blog articles]

Posted by EclectEcon:
Irrationality and Sunk Costs
http://econoclectic.powerblogs.com/posts/1202741278.shtml


   A month or two ago, I received a $10 gift certificate from LL Bean. It
   expires in a few days, and so during the past week, I browsed their
   on-line offerings to see if there was anything I might want to buy
   soon. There wasn't really anything, but I did see a hydration pack (a
   back pack designed to carry 2 litres of water, and which might come in
   handy for long hikes, except that this particular one is really small
   and has little room in it for much else). I wasn't sure whether I
   wanted it.
   Then I checked the Mountain Equipment Co-op [MEC] website and saw the
   exact same thing for $11 less than the LL Bean sale price (I'm leaving
   out a discussion of taxes, duties, shipping costs, etc. here to
   simplify the story).
   But because I had the gift certificate from LL Bean, I felt as if I
   ought to use it. I felt as if they'd be getting away with something if
   I didn't use it, even though the total price from MEC would have been
   lower. I didn't care about "sunk costs" and all that stuff, I just had
   this gut feeling that even though I knew the MEC price was better, I
   should order it from LL Bean.
   I'm an economist. I am supposed to understand these things. It didn't
   matter, though; I still had these feelings and instincts.
   In the end I decided against ordering the pack from either source. But
   the phenomenology of the experience was illuminating. No wonder we (or
   at least I) have trouble teaching these concepts in economics courses.