I believe you are mistaken for the reasons previously explained in redundant detail. I have indicated my support of the decision algorithm suggested by the post and reasonable interpretations thereof in as much as it represents a coherent strategy for optimising the preferences the author indicates that she has. (I reserve judgement as to what extent the specific behavioral suggestions can be generalised to either all people or to myself in particular. I lack evidence regarding either.)
I do not believe this conversation will be able to progress beyond further repetitions of “She said use the sunk cost fallacy”, “No, that isn’t the strategy advocated at all, and you don’t understand what the term means”. I suspect readers would prefer that I did not spam them in that manner.
It’s not the sunk cost fallacy- The cloak IS the best thing in the wardrobe to wear. The cloak, minus $80, is a net positive; the question I am trying to answer is “Would the cloak and -$80 have been a net positive without the prior commitment?”
The point is whether it is the best thing to wear because of its price. If it is, then it’s a sunk cost fallacy, if it isn’t then there is no fallacy.
According to my interpretation of what the OP said, in particular:
If the cloak had been the price of my typical sweater (which I get from thrift stores), not only would I already own five of them, I would choose between the individual cloaks and sweaters in the same way that I currently choose between just my sweaters (based on what would look best with my outfit).
the fallacy seems be present.
Anyway, for the purpose of this discussion, the actual OP thought processes aren’t of particular interest: we are not here to decide whether to award Alicorn a rationality badge. What matters is whether the general form of the argument is correct or fallacious.
1) buy a new spatula and use it = positive utility
2) buy a new spatula, then forget it exists = negative utility
3) never buy the spatula = neutral
The ideal situation is #1. Alicorn is describing a fix to the common failure state, which is #2. Using this technique should result in either #3 (you won’t use the item and therefor don’t buy it) or #1 (you remember to use it)
The issue is that to get $80 worth of value from the cloak, you have to remember to use it. This will require changing habits that would previously have relied on other possessions (in Alicorn’s case, sweaters). For some people and some purchases, people forget to evaluate this. Alicorn has developed a technique that makes her aware of this requirement, helps her evaluate whether she really will remember to use it, and then further helps her to actually use it.
I think you’re confusing commitment with the sunk cost fallacy. Alicorn is committing to using a new wardrobe algorithm, which will properly value the cloak. Her old algorithm would undervalue it, because it wasn’t designed to handle “I have a cloak”. The sunk cost fallacy applies only if Alicorn continues wearing the cloak despite it being a reduction in utility; everything she has said here seems to indicate that wearing the cloak increases her utility; she just has to be careful to remember it as an option.
If the cloak is the best thing to wear because of its price, it still isn’t sunk cost.
It’s when the cloak is worn because of its cost, despite not being the best thing in the wardrobe, that sunk cost applies.
In poker, if I raise $80 on a value bet, and an opponent raises that by $1 (causing me to update the chances that I have a better hand), it is sunk cost to figure “There is a 1% chance that I will win the pot, but I’ve already put in $80 so I might as well lose another dollar”. It is perfectly rational to figure “There is a 1% chance that I will win the pot, and the pot will contain $162 dollars if I risk $1, and that call will end further betting. I expect +$.62 dollars from calling, and +0 dollars from folding.”
If the cloak is the best thing to wear because of its price, it still isn’t sunk cost.
It’s when the cloak is worn because of its cost, despite not being the best thing in the wardrobe, that sunk cost applies.
If the price correlates with the amount of effort you put into convincing yourself to enjoy wearing it, and that effort correlates with how much you enjoy wearing the cloak later on, then yes the price is correlated with the utility of wearing the cloak.
If this price-causes-effort-causes-enjoyment chain brings the total net utility of the cloak from “not the best thing” to “the best thing”, then you’re still winning because there was a potential profit margin in the enjoyment compared to the price and effort costs, and you took the opportunity to make some utilitarian profit.
Can you please explain this to me, in PM if necessary? I’ve read all your comments on this thread, and I still seem to be fairly convinced the sunk cost fallacy is in play. I might just be pattern matching “I spent X on it, so...”, which seems to be the only requirement for the sunk cost fallacy.
If the difference is planning, it still seems like the plan involves “My brain will fall prey to the sunk cost fallacy, so let me trick it into doing what I want using sunk costs”.
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?
I believe you are mistaken for the reasons previously explained in redundant detail. I have indicated my support of the decision algorithm suggested by the post and reasonable interpretations thereof in as much as it represents a coherent strategy for optimising the preferences the author indicates that she has. (I reserve judgement as to what extent the specific behavioral suggestions can be generalised to either all people or to myself in particular. I lack evidence regarding either.)
I do not believe this conversation will be able to progress beyond further repetitions of “She said use the sunk cost fallacy”, “No, that isn’t the strategy advocated at all, and you don’t understand what the term means”. I suspect readers would prefer that I did not spam them in that manner.
It’s not the sunk cost fallacy- The cloak IS the best thing in the wardrobe to wear. The cloak, minus $80, is a net positive; the question I am trying to answer is “Would the cloak and -$80 have been a net positive without the prior commitment?”
The point is whether it is the best thing to wear because of its price. If it is, then it’s a sunk cost fallacy, if it isn’t then there is no fallacy.
According to my interpretation of what the OP said, in particular:
the fallacy seems be present.
Anyway, for the purpose of this discussion, the actual OP thought processes aren’t of particular interest: we are not here to decide whether to award Alicorn a rationality badge. What matters is whether the general form of the argument is correct or fallacious.
1) buy a new spatula and use it = positive utility 2) buy a new spatula, then forget it exists = negative utility 3) never buy the spatula = neutral
The ideal situation is #1. Alicorn is describing a fix to the common failure state, which is #2. Using this technique should result in either #3 (you won’t use the item and therefor don’t buy it) or #1 (you remember to use it)
The issue is that to get $80 worth of value from the cloak, you have to remember to use it. This will require changing habits that would previously have relied on other possessions (in Alicorn’s case, sweaters). For some people and some purchases, people forget to evaluate this. Alicorn has developed a technique that makes her aware of this requirement, helps her evaluate whether she really will remember to use it, and then further helps her to actually use it.
I think you’re confusing commitment with the sunk cost fallacy. Alicorn is committing to using a new wardrobe algorithm, which will properly value the cloak. Her old algorithm would undervalue it, because it wasn’t designed to handle “I have a cloak”. The sunk cost fallacy applies only if Alicorn continues wearing the cloak despite it being a reduction in utility; everything she has said here seems to indicate that wearing the cloak increases her utility; she just has to be careful to remember it as an option.
If the cloak is the best thing to wear because of its price, it still isn’t sunk cost.
It’s when the cloak is worn because of its cost, despite not being the best thing in the wardrobe, that sunk cost applies.
In poker, if I raise $80 on a value bet, and an opponent raises that by $1 (causing me to update the chances that I have a better hand), it is sunk cost to figure “There is a 1% chance that I will win the pot, but I’ve already put in $80 so I might as well lose another dollar”. It is perfectly rational to figure “There is a 1% chance that I will win the pot, and the pot will contain $162 dollars if I risk $1, and that call will end further betting. I expect +$.62 dollars from calling, and +0 dollars from folding.”
That’s what I meant.
It’s almost exactly the opposite of what you wrote.
I’m not sure what we are exactly disagreeing about.
I’m assuming that the cloak is not a Veblen good, hence the utility of wearing it is not correlated with its price.
What do you mean by “best thing in the wardrobe”?
“The best thing in the wardrobe” is that which, when worn today, will have the highest expected utility.
If the price correlates with the amount of effort you put into convincing yourself to enjoy wearing it, and that effort correlates with how much you enjoy wearing the cloak later on, then yes the price is correlated with the utility of wearing the cloak.
If this price-causes-effort-causes-enjoyment chain brings the total net utility of the cloak from “not the best thing” to “the best thing”, then you’re still winning because there was a potential profit margin in the enjoyment compared to the price and effort costs, and you took the opportunity to make some utilitarian profit.
Can you please explain this to me, in PM if necessary? I’ve read all your comments on this thread, and I still seem to be fairly convinced the sunk cost fallacy is in play. I might just be pattern matching “I spent X on it, so...”, which seems to be the only requirement for the sunk cost fallacy.
If the difference is planning, it still seems like the plan involves “My brain will fall prey to the sunk cost fallacy, so let me trick it into doing what I want using sunk costs”.
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?
I also believe the same thing with respect to you. I suppose we can’t resolve this disagreement, so we can close this discussion.