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2 Costs - Are they related to each other like Before & After?

Anything related to matters of the mind

Ismail941

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When I have about Read Sunk Cost Fallacy in The Unscripted : Chapter 26: Momentum Paralysis. My mind immediately clicked me about Opportunity Cost.

Economics -> Opportunity Cost = What a person could have done with what was sacrificed
Psychology -> Sunk Cost Fallacy = Is it known as Buyers Remorse?

I am trying to understand the basics of these.
Do they have interconnected each other as Correlation?
 
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Nick M.

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Opportunity Cost

If you have two options, the opportunity cost is the lost opportunity. If you choose A over B, the opportunity cost is B. That's because you've lost opportunity B.

For instance, let's say you buy a movie ticket at a movie theater. What else could you do besides seeing the movie?

The opportunity cost of going to the movie could be playing games with your friends.

Sunk Cost Fallacy

Every decision has a cost. Not all costs are paid at the same time.

The movie ticket costs $35. Halfway through the movie, you decide that it's garbage. The sunk cost fallacy is deciding to finish the movie to get your $35 worth.

However, the $35 is a sunk cost: you can't get it back. So whether or not you finish watching the movie, you've lost the $35. Therefore, it's better to leave the movie as to not spend more time.

The sunk cost is the $35 that you'll never get back.

Buyer's Remorse

If you make a purchase, then regret making the purchase, that is buyer's remorse.

So after watching half the movie, you regret ever buying the ticket because the movie is garbage.

The regret is buyer's remorse.

---

Correlation?

A situation can have all three of these. But they are completely different and you can't say they are the same.

Here's a simple way to remember each of them.
  • Opportunity cost: a forfeited opportunity
  • Sunk cost: whatever is already spent (and can't return)
  • Buyer's remorse: a feeling of regret from a decision
Hope this helps.

Note: there is a difference between a sunk cost and a sunk cost fallacy. The sunk cost fallacy a logical fallacy. It only occurs when making a second decision. Justifying to continue to "redeem" a sunk cost is the sunk cost fallacy.
 

Ismail941

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Opportunity Cost

If you have two options, the opportunity cost is the lost opportunity. If you choose A over B, the opportunity cost is B. That's because you've lost opportunity B.

For instance, let's say you buy a movie ticket at a movie theater. What else could you do besides seeing the movie?

The opportunity cost of going to the movie could be playing games with your friends.

Sunk Cost Fallacy

Every decision has a cost. Not all costs are paid at the same time.

The movie ticket costs $35. Halfway through the movie, you decide that it's garbage. The sunk cost fallacy is deciding to finish the movie to get your $35 worth.

However, the $35 is a sunk cost: you can't get it back. So whether or not you finish watching the movie, you've lost the $35. Therefore, it's better to leave the movie as to not spend more time.

The sunk cost is the $35 that you'll never get back.

Buyer's Remorse

If you make a purchase, then regret making the purchase, that is buyer's remorse.

So after watching half the movie, you regret ever buying the ticket because the movie is garbage.

The regret is buyer's remorse.

---

Correlation?

A situation can have all three of these. But they are completely different and you can't say they are the same.

Here's a simple way to remember each of them.
  • Opportunity cost: a forfeited opportunity
  • Sunk cost: whatever is already spent (and can't return)
  • Buyer's remorse: a feeling of regret from a decision
Hope this helps.

Note: there is a difference between a sunk cost and a sunk cost fallacy. The sunk cost fallacy a logical fallacy. It only occurs when making a second decision. Justifying to continue to "redeem" a sunk cost is the sunk cost fallacy.


Gotcha! Love your simple breakdown man.
It's pretty much boils down to Decision Making with Time Value & Money Investment
Thanks a lot.
I appreciate you.
 

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