The Sunk-Cost Double Count
A precise picture of how sunk costs get re-injected into opportunity-cost comparisons, the standard double-count pattern that produces it, and a simple test that exposes the error.
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Start when you are ready to enter this Stage's 9 scenes and explore, respond, and learn as you go.
Where exactly do sunk costs re-enter opportunity-cost reasoning, and what does the double-counting arithmetic look like?
A familiar dilemma: you bought a nonrefundable concert ticket, and now a better invitation appears. Which comparison feels 'right'?
Most people suspect their own reasoning here is suspect, but they can't name the exact error: is the ticket price a sunk cost, or a relevant opportunity cost?
A side-by-side payoff table with and without the ticket, plus a counterfactual where the ticket is free, makes the double-counting line visible.
Sunk costs sneak back in whenever a decision-maker compares alternatives that each include (or exclude) a past, unrecoverable outlay — the classical double-count is paying the ticket in both the 'go' and 'stay home' columns, then treating the new invitation as if it must clear the ticket's bar a second time.
Many learners first guess that 'don't waste the ticket' is just prudence, not an error, and that double-counting happens only when someone literally subtracts the ticket twice.
- Behavioral sunk-cost psychology (why people fall for it emotionally)
- Sunk costs in sunk-cost fallacy experiments with irreversible sequences
- Bookkeeping treatment of sunk costs vs. relevant costs in accounting standards
- Real-options or quasi-option reframings of past investment
- 01The Concert Ticket and the Better InvitationslideQuestion
Open with the dilemma: a $120 nonrefundable concert ticket is already bought; a friend offers a $0-cost evening that you'd value at $150. Stay or go?
- Frame the unrecoverable ticket as the suspect line item.
- Pose the exact question: which columns is the ticket allowed to appear in?
- 02Commit to a FrameinteractivePrediction
Let the learner choose how to frame the comparison: (A) keep the ticket in the 'stay home' column only, (B) keep it in the 'go to concert' column only, (C) keep it in both columns, (D) strip it from both. Surface the predicted net difference for each frame.
- Each frame produces a different 'right answer'.
- The learner commits before seeing which frame is consistent with opportunity-cost logic.
- 03Where Does the Ticket Belong?quizPrediction
One multiple-choice question forcing a single commitment: which frame treats the $120 ticket correctly as an opportunity cost?
- Lock in the learner's prior before the evidence scene reveals the double-count.
- 04Four Payoff Tables, Side by SideslideEvidence
Render the same decision in four payoff tables that differ only in where the $120 ticket appears. Show the net difference column for each frame.
- Frame C (ticket in both columns) yields a $120 phantom gap.
- Frame B (ticket attached to the new alternative) yields a different phantom gap.
- Only Frame D (ticket stripped from both) gives the difference that equals marginal value of switching.
- 05Manipulate the Double-CountinteractiveEvidence
Slider widget: move the ticket price from $0 to $300, and slide the new alternative's value. Watch the 'phantom gap' grow and shrink in the wrong-frame view, and stay flat in the correct-frame view.
- The phantom gap is exactly the ticket price, every time.
- The correct-frame difference is invariant to ticket price — proof that the ticket should be ignored.
- 06Anatomy of the Double-CountslideExplanation
Explain why the error appears: opportunity cost is the forgone net of the next-best alternative, but decision-makers silently re-anchor to the pre-decision status quo, which already absorbed the sunk outlay.
- Sunk costs are already 'paid' in the baseline; re-adding them is the double-count.
- Attaching the sunk cost to a new alternative is the mirror image of the same error.
- The clean rule: sunk costs are zero in every column, then take the difference.
- 07When 'Looks Like a Sunk Cost' Isn't OneslideBoundary
Show two near-miss cases where a cost resembles a sunk cost but is actually recoverable: a partially refundable ticket, and a ticket transferable on a secondary market with non-trivial resale value.
- Recoverability, not timing, is the defining test.
- If you can claw part of it back by switching, it stays in the comparison.
- 08Try It on a Different DomaininteractiveTransfer
Apply the test to a new scenario: a company has spent $2M on a software project; a cheaper off-the-shelf alternative appears at $500K. Learner reconstructs the correct frame and computes the switching decision.
- Strip the $2M from both columns before comparing.
- The relevant comparison is $500K vs. the marginal cost of finishing, not $2M vs. $500K.
- 09Where Sunk Costs Sneak Back InslideResolution
Close the loop: sunk costs re-enter when the frame bundles them into one alternative, excludes them from another, or attaches them to a new option; the signature double-count is the same dollar appearing as a loss in the column it was already paid in, then reappearing as a hurdle the new option must clear.
- Three re-entry routes: bundle, exclude, re-attach.
- The fix is mechanical: zero out the sunk cost in every column before taking the difference.
- The right question is never 'can the new option beat the ticket?', it is 'what do I gain net by switching?'
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