Sunk Cost Jason 11 Apr 2006

42 comments Latest by Nigel

My favorite economic precept is sunk cost. What’s yours?

42 comments so far (Jump to latest)

Don Drake 11 Apr 06


I have 2:

Opportunity Cost - always useful when analyzing new projects, new purchases, new hires, etc.

Price Elasticity - pure geeky economic term, but it really describes supply and demand in a mathematical model.

Joris 11 Apr 06

I love all of the above but: the Law of Diminishing Returns is also nice. Thats the one that keeps me thinking that it can be disproved using the internets.

Jonathan M 11 Apr 06

My biggest sunk cost is what my wife spends on clothes, shoes, and makeups. They are totally price inelastic and have a huge opportunity cost.

Jonathan M 11 Apr 06

… and my wife would give me a perplex look whenever I am using the law of diminishing returns on her 100th pair of shoes…sign

Mark 11 Apr 06

Would probably be the learning/experience curve. It is, at it’s core, a great reason to appreciate your employees and treat them well.

The more your turnover rate creeps up, the more of an impact learning curves will have on your business…

Dan Boland 11 Apr 06

I hate to sound like a copycat, but the Law of Diminishing Returns and Opportunity Cost are two that I notice numerous times on a daily basis.

Carlo 11 Apr 06

Comparative advantage.

Working to your comparative advantage ~= Do what you love

Tom Greenhaw 11 Apr 06

I’d have to go with the old law of supply and demand influencing price…

nate 11 Apr 06

Personally, I’m partial to the Law of Excluded Middle.

Oh wait, we’re talking economics…

Nevermind.

Not adding anything to the discussion 11 Apr 06

Three economists went out hunting, and came across a large deer. The first economist shoots, but misses by 20 ft to the left. The second economist shoots, but also misses, by 20 ft to the right. The third economist shouts, “I got it!”

Ryan Ripley 11 Apr 06

@Jonathan M

I’m pretty sure that wives and economics do not mix… :-) I think the general rule is:

happy wife = happy life

Sharaf Atakhanov 11 Apr 06

My favorite: Game Theory!

Ian Schuler 11 Apr 06

Diminishing marginal returns definitely gets my top vote, but I also have a special place in my heart the incompatible triangle of monetary econ.

You’re familiar with the software development adage: “schedule, budget and features: pick two.” In monetary economics its “fixed exchange rate, free movement of capital, and ability to control your monetary policy (to do things like control inflation): pick two”

Drew Pickard 11 Apr 06

Well, Sunk Cost makes me feel good that I didn’t go to that Mogwai show I had a ticket for.

sort of

Matt White 11 Apr 06

Mine is marginal utility. It explains individual behavior very well in a lot of circumstances.

Berserk 11 Apr 06

Leisure!

xian 11 Apr 06

“Opportunity cost” is a great one, and salient to much of the “Get Real” philosophy, as the welcome constraints often force you to choose an opportunity and let go of many others.

I don’t think I’m alone in this culture in often wishing I can choose something and at the same time not forego the alternatives, have my cake and eat it too.

Bob 11 Apr 06

Sunk cost is definitely my favorite. As a sysadmin I see a lot of good decisions get dragged down by considering sunk costs as waste. So in order to not “waste” the investment of time or money groups plod on and try to salvage their projects and systems, when the time could be spent on things that better meet their needs from the ground up.

Diminishing marginal returns is also cool.

nursegirl 11 Apr 06

After reading Bob’s comment, and noticing that the “Backpack calendar coming soon” notice is no longer on my backpack account, I’m wondering if you have anything you’ll be announcing soon.

I’ve been so excited for the possibility of this calendar…

Peter Fitzgibbons 11 Apr 06

I LOVE the reference to the “Concorde Effect” at the end of the W article. I never new that about the Concorde project!

Wayne 11 Apr 06

If we’re talking behavorial economics my pick is choice overload.

scott brooks 11 Apr 06

This is my alltime favorite.

“Parkinson’s Law,” - work expands so as to fill the time available for its completion.”

http://en.wikipedia.org/wiki/Parkinson%27s_Law

I had a economics prof back in university who said if you are going to understand one thing about this course learn this.

Especially useful if you have your own company or your own product ….or have to deal with your local bureaucrat.

IT goes against the 37sig law that less is more sort of ….

cheers

scott

Pascal Pensa 11 Apr 06

+1 for comparative advantage.

Maxine Sherrin 12 Apr 06

Yeah my favourite is sunk costs as well, if only because the ability to actually abide by it without thinking about it is almost impossible to cultivate. Believe me, I’ve tried! Whether you’re thinking “Should I continue waiting for the train or go upstairs and get a cab?” or “Do I continue with this project despite the fact its flaws are becoming more obvious by the day, morale is at a low and no one will give damn if we do ever finish it?”, the first voice you hear will always be “But you’ve waited so long already!” and “But we’ve already put all this work in!”.

I know now I’ll never be able to not have those thoughts, the trick is just to acknowledge them, but then be sure to dismiss them.

Michael Ward 12 Apr 06

I think I just had an epiphany. The sunk costs idea could seriously alter my perspective on life.

Jason Liebe 12 Apr 06

Price Elasticity of Demand is my favorite. I owned a candle company for a while and that was a good thing to play with.

If anyone saw the apprentice a couple nights ago you could have witnessed a fine example of PED. One team had their prodcuct at $7.99 the other at $4. $4 team won by 300%. Of course I’m simplifying things…

Sunk cost is my least favorite Econ precept being a serial entrepeneur… That and SHIRKING :-)

Cheers.

Jason Liebe 12 Apr 06

Price Elasticity of Demand is my favorite. I owned a candle company for a while and that was a good thing to play with.

If anyone saw the apprentice a couple nights ago you could have witnessed a fine example of PED. One team had their prodcuct at $7.99 the other at $4. $4 team won by 300%. Of course I’m simplifying things…

Sunk cost is my least favorite Econ precept being a serial entrepeneur… That and SHIRKING :-)

Cheers.

Jason Liebe 12 Apr 06

Price Elasticity of Demand is my favorite. I owned a candle company for a while and that was a good thing to play with.

If anyone saw the apprentice a couple nights ago you could have witnessed a fine example of PED. One team had their prodcuct at $7.99 the other at $4. $4 team won by 300%. Of course I’m simplifying things…

Sunk cost is my least favorite Econ precept being a serial entrepeneur… That and SHIRKING :-)

Cheers.

Jason Liebe 12 Apr 06

Oh NOOO, I’ve become one of those losers that hit the post button 3 times.

Sorry *^-^*

David 18 Apr 06

How about a Subgame perfect equilibrium: in game theory, an equilibrium such that players’ strategies constitute a Nash equilibrium in every subgame of the original game. Information asymmetries are kinda cool, too.

Chuck 19 Apr 06

Go figure a blog on IT that discusses econ, I love it. My favorite is diseconomy of scale, the opposite of economy of scale, where each dollar invested cost you more than you get back. Tom Peters dsicusses some of this in a book titled, “You Can’t Shrink Yourself to Success”. A bit longwinded but a concept for much of the excess in corporate culture.

Nigel 17 Aug 06

Externality is my favourite - the hard to measure effects on third parties of transactions, such as pollution or hidden benefits.

Nigel 17 Aug 06

Externality is my favourite - the hard to measure effects on third parties of transactions, such as pollution or hidden benefits.

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