Sunk Costs

The other day Jeremy was reading his homework, and it was all about sunk costs (money that has already been spent).  He mentioned how funny it is that people place so much value on things they've paid for.  Whether or not that something is still really valuable, it's something that has already been paid for, so it had better be enjoyed, right?  Wrong!  In the business world you should not base your decisions on sunk costs.

I like Wikipedia's example.  I'll quote it here:

In the case of a movie ticket that has already been purchased, the ticket-buyer can choose between the following two end results if he realizes that he doesn't like the movie:

1. Having paid the price of the ticket and having suffered watching a movie that he does not want to see, or;
2. Having paid the price of the ticket and having used the time to do something more fun.

In either case, the ticket-buyer has paid the price of the ticket so that part of the decision no longer affects the future. If the ticket-buyer regrets buying the ticket, the current decision should be based on whether he wants to see the movie at all, regardless of the price, just as if he were to go to a free movie. The economist will suggest that, since the second option involves suffering in only one way (spent money), while the first involves suffering in two (spent money plus wasted time), option two is obviously preferable.

Now, most of us would sit and suffer through that movie because we paid for it, right?  Or if we have buyer's remorse about something we may just stick it out too.  This isn't to say we should do anything irrational or stupid.  We just shouldn't base our future decisions on whether or not we made good financial decisions in the past.

I think the same could be said for most decisions.  Are we making poor choices to continue doing something just because we've made the same choice in the past?  Are we continuing to do practice old habits just because we paid for them or because we might look cool by doing them?  If we're going to do something it should be for the right reasons, whether or not we've paid anything or done stupid things in the past.  If it's dumb to do something, I shouldn't do it, even if I've already paid for the ticket.  Right?  Of course, right!

I guess it all kind of leads up to one thing I learned on my youth mission all those years ago that really stuck with me.  It is that when you know something is right, you do something about it.  It is simple yet profound.  I know the gospel is true.  Therefore, I go to church and I try to live according to the things the church teaches.  I know that my children are gifts from a loving Heavenly Father.  Therefore, I try (and when I mess up I try again) to love them as He loves them and take care of them as He would.  It's a given that we're going to mess up.  It's a given that we will stumble, but because of the love of our Savior we can get right back up and try again.  Because of Him we don't have to hold on to the things we've done in the past.  We can move on to a brighter future.  What a wonderful gift.