How the concept of sunk costs changed my life – Laura Hopkins ’14
In October 2015 I went on a cycle-touring holiday with my bici-friki boyfriend. It was loads of fun. And loads of hard work. Every day was a new challenge:
- the fancy bike computer that was showing us the route was set on training mode on the first day – it took us 112km to do a 50km stretch on the back roads up the mountains;
- I suffered not one, not two, but three unfortunate punctures on the road;
- and then there was that storm we tried to ride through.
(I still highly recommend bike touring, and count the holiday as a highlight of the year. And I had an otherwise great year, too.)
We were trying to reach Trieste in Italy to visit our friend Rafael. We had two weeks before we were due to show up for a flight home from nearby Venice. (We were optimistic.) One week in – when it was clear we wouldn’t be able to cycle there in time unless our panniers turned into combustion engines overnight – we decided to bite the bullet and book a few trains that would get us there in time to hang out with Rafael for a few days and fly home.
Remember that storm I told you about? Well, it scuppered all our plans. There we were ready to take our trains in the direction of Italy, and the line was completely down due to storm damage.
There were six days left of our holiday before we needed to be back at work. We waited a day, figuring we could check out the town we found ourselves in (Avignon – beautiful) – it would take 1.5 days to get from Avignon to Trieste by train, so after waiting one day in Avignon and then travelling, we’d still have 3.5 days before needing to get our flight. That was cool with us.
However, the trains weren’t running the next day either. Should we wait another day? Now we’re only looking at 2.5 days in Trieste. Of course we waited. Rafael is an awesome guy and a great friend.
But the following day brought us no luck. If we waited another day, we’d only have 1.5 day between arriving in Trieste and flying back from Venice. Yes, it’s close, but it’s still half a day of travelling to the airport etc.
We were faced with the decision to either:
- wait for another day and only perhaps be able to get on the train, and then spend half of our remaining three days of holiday travelling, only to spend one night with Rafael and then turn around and fly home.
- Cycle back the way we had come, away from the bad weather, and enjoy four further days on the road.
How much had we paid on the tickets?
- Two TGV tickets from Avignon to Nice +
- Two fast rail tickets from Nice to Milan +
- Two train tickers from Milan to Trieste +
- Two flights from Venice to Barcelona, including luggage and bike fees =
Somewhere back there I estimated this to be in the region of €600 total.
We decided to turn our bikes around and cycle back to Barcelona. We could make it to the border in four days and then hop on a train.
That was one expensive decision, right?
No. The concept of sunk costs tells us why not.
This somewhat counter-intuitive lesson reminds us that we can’t change the past – perhaps not such a revolutionary concept when you put it that way. Sunk costs tells us to make decisions about the future, taking into account only prospective costs, and not those already incurred (unless you have a time machine, in which case don’t tell me because I will be mad you didn’t lend it to me when I clearly needed it to tell myself not to buy those tickets.)
We would have paid the money had we been sat on the trains or not. In this moment, we were facing the decision as per points 1 and 2 above, but with no reference at all to the expenditure on the tickets. That was history. Yesterday’s news. Somebody else’s money.
There were no regrets.
I knew we hadn’t lost €600.
Econ told me so.
Laura Hopkins graduated from the Barcelona GSE Master in Economics of Public Policy in 2014. She divides her time between creating, monitoring, and evaluation frameworks for international development programs, and developing her business, Healthy Start Holidays.