Making commitments doesn’t mean that you are engaging in the sunk cost fallacy.
Let’s say I want to exercise every day in the next week for 30 minutes. I could promise you to pay you $1000 if I don’t fulfill my goal. Making that promise will increase the likelihood that I will exercise every day.
You have to ask yourself two things: “What’s the value of the increased likelihood of exercising for yourself?” and “What’s the likelihood of having to pay the $100. What’s the expected cost of making the commitment?”
If being healthy is really valuable for yourself the benefit of the increased likelihood of exercising might be $75 for you. The chance of losing the money might be 0.25 and therefore cost you an expected $25.
The net value of making that commitment is $50.
It’s a good idea to make the commitment contract.
Alicon advocates to make a commitment when buying an item.
This commitment is supposed to have two advantages:
1) Increasing the expected utility in case of buying the item.
2) Decreasing the chance that she makes a bad buying decision.
It should be fairly trival to see that 2) is true. Determining whether 1) is true is more complicated.
It’s about far mode vs. near mode and about the value of focusing attention.
Alicorn doesn’t use a formal commitment contract for her robe. She would feel a bit of emotional pain if she would
valuate her commitment. For illustration purposes let’s imagine she would use a commitment contract.
She would take a friend and say: “If I don’t wear the robe 10 times in the next three month I will pay you $100”.
Let’s say we have the last day of the three month and she wore a robe 9 times. She needs to wear the robe today or lose the $100 dollar. Today, she’s interviewing for a new job. If she wears the robe to the interview she expects to have lower chances of getting the job. She estimates the costs of wearing the robe to the interview as $200.
If she still decides to wear the robe she’s commiting a fallacy.
That doesn’t mean that it was a mistake to make the commitment . Otherwise she might have worn the robe only 3 times. The 6 added times of wearing the robe might be worth $100.
The scenario you describe seems relevantly different from the one Alicorn described. I completely understand how commitment contracts are helpful, and even though they rely on (or are necessitated by) human cognitive flaws, the sunk cost fallacy is not among them.
In your scenario, at time #10 you’re making the rational decision between wearing the robe today and $100. In a parallel scenario to this one based on what Alicorn did, you instead would pay the $100 ahead of time and then (for some reason) be committed to wearing it 10 times. Now, what decision are you making at time #10 that is similar to the case above?
Making commitments doesn’t mean that you are engaging in the sunk cost fallacy.
Let’s say I want to exercise every day in the next week for 30 minutes. I could promise you to pay you $1000 if I don’t fulfill my goal. Making that promise will increase the likelihood that I will exercise every day.
You have to ask yourself two things: “What’s the value of the increased likelihood of exercising for yourself?” and “What’s the likelihood of having to pay the $100. What’s the expected cost of making the commitment?”
If being healthy is really valuable for yourself the benefit of the increased likelihood of exercising might be $75 for you. The chance of losing the money might be 0.25 and therefore cost you an expected $25. The net value of making that commitment is $50. It’s a good idea to make the commitment contract.
Alicon advocates to make a commitment when buying an item. This commitment is supposed to have two advantages: 1) Increasing the expected utility in case of buying the item. 2) Decreasing the chance that she makes a bad buying decision.
It should be fairly trival to see that 2) is true. Determining whether 1) is true is more complicated. It’s about far mode vs. near mode and about the value of focusing attention.
Alicorn doesn’t use a formal commitment contract for her robe. She would feel a bit of emotional pain if she would valuate her commitment. For illustration purposes let’s imagine she would use a commitment contract. She would take a friend and say: “If I don’t wear the robe 10 times in the next three month I will pay you $100”.
Let’s say we have the last day of the three month and she wore a robe 9 times. She needs to wear the robe today or lose the $100 dollar. Today, she’s interviewing for a new job. If she wears the robe to the interview she expects to have lower chances of getting the job. She estimates the costs of wearing the robe to the interview as $200. If she still decides to wear the robe she’s commiting a fallacy.
That doesn’t mean that it was a mistake to make the commitment . Otherwise she might have worn the robe only 3 times. The 6 added times of wearing the robe might be worth $100.
The scenario you describe seems relevantly different from the one Alicorn described. I completely understand how commitment contracts are helpful, and even though they rely on (or are necessitated by) human cognitive flaws, the sunk cost fallacy is not among them.
In your scenario, at time #10 you’re making the rational decision between wearing the robe today and $100. In a parallel scenario to this one based on what Alicorn did, you instead would pay the $100 ahead of time and then (for some reason) be committed to wearing it 10 times. Now, what decision are you making at time #10 that is similar to the case above?