Imagine you place a $5,000 non-refundable deposit on a venue for your wedding, but later decide to call everything off. What would be the cost of canceling? If you think it’s $5,000, you fell for what’s known as the sunk cost fallacy — a common cognitive bias.
From an economic perspective, it’s what we give up going forward with the decision to cancel and does not include the cost of the venue rental, because no matter whether we get married or not we’re out the $5,000. That choice has already been made and is irreversible. It has become what we call a sunk cost. Because sunk costs cannot be changed going forward, they are not relevant to the next decision.
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Script: Jonas Koblin and Jonas Jaquet
Artist: Pascal Gaggelli
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Cannonball Swing – RimskyMusic
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Visit our website to access suggested classroom activity on this topic.
00:37 Jimmy’s story
01:15 Sunk cost fallacy
01:56 experiment by Hal Arkes & Catherine Blumer
02:30 3 psychological reasons behind this behavior
03:14 What was your experience
03:40 Patrons credits
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