My understanding is that real humans routinely have cyclic preferences—particularly when comparing complicated objects like apartments or automobiles, where there are many different attributes and we ignore small differences. I can’t find a reference for this in a few minutes of googling, however.
I suspect in practice transaction costs are high enough that the money pump doesn’t arise in most cases where we have intransitive preferences. Once people have made their decision by some arbitrary means, they will stick to it.
The sunk costs fallacy would be relevant if people were swayed by the money they already spent, rather than by the cost of switching. It’s easy to disentangle the two. In the case of apartments, one is your past rent payments, the other is your moving costs.
My impression is that people often say “it’s too expensive and troublesome to move and too hard to break the lease” and don’t often say “I already spent a lot of money on the lease”.
Transaction costs are real, and there’s nothing irrational about considering them.
My understanding is that real humans routinely have cyclic preferences—particularly when comparing complicated objects like apartments or automobiles, where there are many different attributes and we ignore small differences. I can’t find a reference for this in a few minutes of googling, however.
I suspect in practice transaction costs are high enough that the money pump doesn’t arise in most cases where we have intransitive preferences. Once people have made their decision by some arbitrary means, they will stick to it.
One of the benefits of the sunk cost fallacy.
I don’t think that’s the issue here.
The sunk costs fallacy would be relevant if people were swayed by the money they already spent, rather than by the cost of switching. It’s easy to disentangle the two. In the case of apartments, one is your past rent payments, the other is your moving costs.
My impression is that people often say “it’s too expensive and troublesome to move and too hard to break the lease” and don’t often say “I already spent a lot of money on the lease”.
Transaction costs are real, and there’s nothing irrational about considering them.