How to do things with sunk costs

Noûs (forthcoming)
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Abstract

It is a commonplace in economics that we should disregard sunk costs. The sunk cost effect might be widespread, goes the conventional wisdom, but we would be better off if we could rid ourselves of it. In this paper, I argue against the orthodoxy by showing that the sunk cost effect is often beneficial. Drawing on discussions of related topics in dynamic choice theory, I show that, in a range of cases, being disposed to honor sunk costs allows an agent to mimic a resolute chooser, someone who adopts the best plan at the outset of a decision problem and sticks with it, even when resoluteness is unfeasible. I discuss several kinds of cases in which honoring sunk costs coincides with resolute choice.

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Michael Zhao
University of Notre Dame

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References found in this work

Why We Should Reject S.Derek Parfit - 1984 - In Reasons and Persons. Oxford, GB: Oxford University Press.
The Nature of Rationality.Robert Nozick - 1994 - Princeton University Press.
Risk aversion and the long run.Johanna Thoma - 2018 - Ethics 129 (2):230-253.
Pragmatic Rationality and Rules.Edward F. Mcclennen - 1997 - Philosophy and Public Affairs 26 (3):210-258.

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