Of course you should ignore "sunk costs" - the problem is deciding what's a "sunk cost" and what's "an investment" with an associated probability on its return.
To riff on the example say you were prepared to pay $300, you paid $55 and you're being offered $500 on the door.
Yes. You probably would sell the tickets, for $445 profit. However maybe you flew into the city for $200 and booked a hotel for $100. You've now sunk $55+$200+$100 and if you sell your ticket, that's all list. You walk away with $145 profit - but you'd originally been prepared to see Bruce for twice that.
Maybe if you wait 30 mins the tout will put his price up? Or maybe somebody else will sell, he can deliver on his commitment to a third party, and resale price will collapse.
Now if the price collapses, you can still see Bruce. If they price offered remains/rises you can re-consider selling.
Now maybe you do take the money and exit the market.... Except article mentions Bruce is playing the next day. You could sink $100 into another night in the hotel and $50 to change your flight (which roughly halves your return). This would let you see if you can get another cheap ticket on stub-hub, and the next day sell them to touts, go to the show, stand outside trying to tout them yourself. When you spend that $150 then of-course the cost has been sunk and you should ignore it from then on. Problem is deciding whether or not to make the sunk-cost/investment.
Of course you should ignore "sunk costs" - the problem is deciding what's a "sunk cost" and what's "an investment" with an associated probability on its return.
Thanks for articulating that so well.
It's easy to analyze sunk costs when actions can be considered in isolation academically. It's not at all the same situation when things are not so clean.
What if the concert was at CBGB, and it was closing the next day? What if you liked Streisand and it was possibly her last show? What if it was the last tour of KK Downing? Would any amount of money make selling your tickets worthwhile?
There’s also the much more basic concept of time preference. Regardless of the monetary costs of preparing for and traveling to the concert, the concert experience is going to be more valuable to you if it is set to occur in 5 minutes rather than in, say, 3 months.
It’s perfectly understandable and rational to value your ticket more 5 minutes before the concert starts than 3 months before it starts, just like you’ll pay more for almost anything if you get it now versus if you get it far in the future.
Time preference is a pretty basic Econ 101 concept. It’s why you get charged interest on loans.
It turns out the amount of time you spent getting the tickets is irrelevant.
No its not my time is worth something.[1] If I spent 3 hours getting the tickets and I value my time at $150 an hour then the value of the tickets is now $505 and I'm only getting offered $500
Also the value of a ticket "To Me" may be worth more than $55 I spent. It might be worth $1000 in my mind for a chance to see Bruce regardless of what I spent.
[1] One of my great life hacks as I've gotten older is valuing my (particularly free) time at some amount - usually $150 per hour. Have a task I can pay someone to do and get the time back on a weekend? - $150 x Time of Task is the amount I'm willing to pay.
If I spent 3 hours getting the tickets and I value my time at $150 an hour then the value of the tickets is now $505 and I'm only getting offered $500
Except that's not how spending time (or money) on something works. If you spend 3 hours trying to fix something and fail, you shouldn't value the item any more. The value of the tickets doesn't go up because the time you spent on it. Selling the ticket (or keeping the ticket) doesn't get you the time back. The question to evaluate the potential sale is only which do you value more, the $500 being offered or the ticket. What you spent on the ticket is irrelevant - it's a sunk cost.
We see this with stock trades all the time. Say you bought a share of company XYZ at $100, and then a scandal broke and the value plummeted to $20. You don't think the company is worth buying for $20, either, because the scandal was that bad. Therefore you should sell it, as you think the true value is below $20. Yet, many people would hold the stock as they don't want to take the $80 loss. This is what happens when you fail to ignore sunk costs - what you paid for the item (be it in cash, or the ticket example, your time) doesn't increase its present value to you.
It increases with the amount of effort you would spend. If you value your time at $150/hr and you _would_ spend 3 hours looking for them, the tickets are worth $505 to you, even if you spent 15 minutes looking for them. Then, if someone offers to buy them at $500 that’s a bad deal because you value them more.
Time is money. I think we'd also have to factor in the opportunity cost. You invested time in getting the tickets, which also denied you something else.
With regards to the tickets, I think the better question is: Will that ~$500 buy me an experience/memory as valuable as seeing Bruce? If, for example, the next thing on your bucket list is say $1500 then it's probably wise to stick with Bruce, and deal with what's next later.
Comments
Of course you should ignore "sunk costs" - the problem is deciding what's a "sunk cost" and what's "an investment" with an associated probability on its return.
To riff on the example say you were prepared to pay $300, you paid $55 and you're being offered $500 on the door. Yes. You probably would sell the tickets, for $445 profit. However maybe you flew into the city for $200 and booked a hotel for $100. You've now sunk $55+$200+$100 and if you sell your ticket, that's all list. You walk away with $145 profit - but you'd originally been prepared to see Bruce for twice that.
Maybe if you wait 30 mins the tout will put his price up? Or maybe somebody else will sell, he can deliver on his commitment to a third party, and resale price will collapse.
Now if the price collapses, you can still see Bruce. If they price offered remains/rises you can re-consider selling.
Now maybe you do take the money and exit the market.... Except article mentions Bruce is playing the next day. You could sink $100 into another night in the hotel and $50 to change your flight (which roughly halves your return). This would let you see if you can get another cheap ticket on stub-hub, and the next day sell them to touts, go to the show, stand outside trying to tout them yourself. When you spend that $150 then of-course the cost has been sunk and you should ignore it from then on. Problem is deciding whether or not to make the sunk-cost/investment.
Thanks for articulating that so well.
It's easy to analyze sunk costs when actions can be considered in isolation academically. It's not at all the same situation when things are not so clean.
What if the concert was at CBGB, and it was closing the next day? What if you liked Streisand and it was possibly her last show? What if it was the last tour of KK Downing? Would any amount of money make selling your tickets worthwhile?
KK Downing demon-possessed and fully lit @4:26
https://www.youtube.com/watch?v=J4d5sMg8eCE
There’s also the much more basic concept of time preference. Regardless of the monetary costs of preparing for and traveling to the concert, the concert experience is going to be more valuable to you if it is set to occur in 5 minutes rather than in, say, 3 months.
It’s perfectly understandable and rational to value your ticket more 5 minutes before the concert starts than 3 months before it starts, just like you’ll pay more for almost anything if you get it now versus if you get it far in the future.
Time preference is a pretty basic Econ 101 concept. It’s why you get charged interest on loans.
The Springsteen ticket example is a horrible one.
It turns out the amount of time you spent getting the tickets is irrelevant.
No its not my time is worth something.[1] If I spent 3 hours getting the tickets and I value my time at $150 an hour then the value of the tickets is now $505 and I'm only getting offered $500
Also the value of a ticket "To Me" may be worth more than $55 I spent. It might be worth $1000 in my mind for a chance to see Bruce regardless of what I spent.
[1] One of my great life hacks as I've gotten older is valuing my (particularly free) time at some amount - usually $150 per hour. Have a task I can pay someone to do and get the time back on a weekend? - $150 x Time of Task is the amount I'm willing to pay.
Except that's not how spending time (or money) on something works. If you spend 3 hours trying to fix something and fail, you shouldn't value the item any more. The value of the tickets doesn't go up because the time you spent on it. Selling the ticket (or keeping the ticket) doesn't get you the time back. The question to evaluate the potential sale is only which do you value more, the $500 being offered or the ticket. What you spent on the ticket is irrelevant - it's a sunk cost.
We see this with stock trades all the time. Say you bought a share of company XYZ at $100, and then a scandal broke and the value plummeted to $20. You don't think the company is worth buying for $20, either, because the scandal was that bad. Therefore you should sell it, as you think the true value is below $20. Yet, many people would hold the stock as they don't want to take the $80 loss. This is what happens when you fail to ignore sunk costs - what you paid for the item (be it in cash, or the ticket example, your time) doesn't increase its present value to you.
The value of the tickets doesn’t increase with the effort you spent towards them.
It increases with the amount of effort you would spend. If you value your time at $150/hr and you _would_ spend 3 hours looking for them, the tickets are worth $505 to you, even if you spent 15 minutes looking for them. Then, if someone offers to buy them at $500 that’s a bad deal because you value them more.
Sure it does, my labor is why I’m now being offered $500 for $50 tickets.
Time is money. I think we'd also have to factor in the opportunity cost. You invested time in getting the tickets, which also denied you something else.
With regards to the tickets, I think the better question is: Will that ~$500 buy me an experience/memory as valuable as seeing Bruce? If, for example, the next thing on your bucket list is say $1500 then it's probably wise to stick with Bruce, and deal with what's next later.