Sunk Cost Fallacy

[zapshe]

Helios - we once debated whether it was a sunk cost fallacy for a college student to say something along the lines of, "I'll finish college, after all, I've already spent 3 years here."

I had been thinking about that. I still stand my by claim that this is not a sunk cost fallacy, my argument:

A sunk cost fallacy is a fallacy because you cannot justify further losses with previous losses that you cannot recoup. You can't say, "I'll gamble another $10, after all, I already gambled and lost $100." Because the $100 you spent is already gone. Any future action you take because of that $100 loss is illogical. There's no connection between that $100 and you anymore.


The reason the college statement is different is because you are NOT justifying future loses (one more year in college) with previous losses (spent 3 years in college already). Instead, you're recognizing that the degree is worth all 4 years. The previous 3 years have gotten you to the point where you are just one more year away.

Those 3 years are a "sunk cost" in terms of that you'll never get them back. However, you are still going to recoup that loss - and they helped you get there.


You can imagine looking back at it like this, "I spent 4 years in college to get a degree, the degree made me X money, it was worth it." You look at the totality to see if the degree was worth it.

The gambler might say, "I gambled $2500 over the past year and won $50,000 today!". It sounds similar, but losing the $2500 was never a condition for winning the $50,000. Only the money they gambled right before winning the $50,000 actually directly impacted them winning that money.


With college, those 3 years were necessary, and now you need one more. The degree will more than recoup you for all 4 years spent, so its not a sunk cost fallacy to say, "I invested 3 years, I need to invest 1 more year, then the payoff will make up for all my investments".

Because you're not justifying further losses with previous losses, you're justifying further gains because they will offset all your losses.


Now, you can say this is unnecessary - because you only have to analyze that 1 remaining year to conclude that investing 1 year and getting a college degree is worth it, therefore you didn't have to include the 3 years spent into the equation.


That may be logical in terms of what decision to make right now, but its not logical when analyzing your investment and reward. You wouldn't look back on that and say, "I spent 1 year and got a college degree!", you'd say you spent 4 years.



A big point: Let's say the logic does say 1 more year of college is well worth it to get a college degree, therefore, the sunk cost of 3 previous years doesn't matter.

Sure. But let's say you think, "That one year will pay off big time to get that degree, but I'm kinda lazy, let's not." That's perfectly reasonable logic if you don't account for the sunk cost. Because saying 1 year = college degree separates you from the losses you have already inccurred. It isolates you from the investments you already made to get the degree, saying that it'll only cost you 1 year of your time.


However, the reality is that you DID incur loses. You're not justifying future losses with previous losses, your justifying further investment to recoup ALL of your losses.



This is why I think its fundamentally different to say, "I've already spent 3 years to get this degree, I may as well finish" (assuming you're going to benefit from this degree and you're saying this because you're tired of the effort or something similar) as compared to saying, "I gambled away $1000 so I have to keep gambling."