Sunk Regrets

I've been reading The Paradox of Choice by Barry Schwartz for a long time now. I'm not very good at finishing what I start, and so I've restarted the book a few times. I'm about half-way through it (again) and finally found something I don't agree with. For the most part, I've been blown away by how the concepts in the book have explained my experiences and struggles with western culture.

His latest contention (at least the latest that I've read) has to do with sunk costs. This is a term from economics that refers to past expenses that still affect our decision making but shouldn't (because they've already been spent and we can't change that). For example, let's say you buy a ticket to an expensive musical that's showing in three weeks. Three weeks go by, the night of the play comes along and you're not feeling well— what should you do? Most people would go to the musical even if they don't feel like it. We would feel like it would be "wasting" the money we've spent to skip the play. But economics would say the price of the ticket is a "sunk cost". You've already spent it. You can't get it back. So the only question you should be asking yourself is "What do I want to do tonight?" The answer to that question is what is going to make you happiest— it's the "best" decision— regardless of how much you spent on the tickets.

Here's another example that might hit closer to home. This one is straight out of the book. Do you have any shoes in your closet that you never wear? Maybe they're ugly, or maybe they don't fit, or maybe they're running shoes and you don't run--but then, why do you still have them? Is it because getting rid of them would be admitting that you shouldn't have bought them in the first place— because you don't want to "waste" the money? The problem with that line of thinking is that you already wasted your money— when you bought them. Holding on to them doesn't change that fact, it only makes it worse. That's the idea of a sunk cost.

This is what the author has to say about sunk costs: "What leads me to believe that sunk-cost effects are motivated by the desire to avoid regret rather than just the desire to avoid a loss is that sunk-cost effects are much bigger when a person bears responsibility for the initial decision… If sunk-cost effects are just about hating to lose, then whether the loss is your responsibility or not is irrelevant; it's the same loss." What he noticed is that our tendency to worry about sunk-costs is much greater when we made the initial decision that led to the sunk-cost. For example, we're much less likely to go to the expensive musical when we're sick if we were given the ticket as a gift, as opposed to purchasing it ourselves. And we're much more likely to re-gift a pair of shoes that were given to us than to get rid of a pair of shoes that we bought.

Now it's the reason behind this phenomenon that I take issue with. He says that this line of thinking is due to the difference between regret and loss--blah blah blah--it's not that important. And it's not that I disagree with him, per-say, but I think there is something much more important going on:

Whether consciously or not, we create sunk costs in the hope of affecting our future decisions because we realize that what makes us happiest in the moment is not always what will make us happiest over the long run. We set up our environment to encourage the best long-term decisions in spite of our tendency toward short-term thinking. It's as if we're setting reminders to help us remember what is truly important to us.

So we purchase tickets the musical knowing full well that when it comes down to each and every Friday night we would rather stay home and watch sitcoms. But we also know that come Saturday morning we'll be happy that we went out.

And we buy those running shoes knowing full well that we won't want to go running at 5am. But we also know that at 6am we'll be happy that we did.

So look at your life. Look at the big picture. Choose a path. Set goals. And create an environment that will encourage you to achieve those goals in spite of your tendency toward short term thinking. Create sunk costs that will act as reminders of what's truly important to you. Why? Because they work.