Placeholder Image

Subtitles section Play video

  • Jimmy sells his catch at the local market. He  knows that he can sell only fresh fish, so he  

  • throws the bad ones away, regardless of the time  it takes him to find, catch, and clean the fish.

  • Jimmy knows that if he were to sell spoiled goodshis customers would not return. So, instead of  

  • crying over stale fish, he considers them as sunk  costs and sells what customers actually want.

  • In his free time, Jimmy isn't' that rational

  • Unlike fish that don't go to the movies, Jimmy  does. He buys himself a ticket for the afternoon  

  • show. But it turns out that a few hours before  the film starts, his friends want to meet up to  

  • play football, Jimmy's favorite sport. Since  he has already spent the money on the ticket,  

  • he declines the invitation. According to sunk  costs theory, he shouldn't havethe money  

  • he spent on the tickets is already gone, and  he won't get it back by watching the movie.

  • What matters is that he has a good time.

  • Jimmy falls for the so-called sunk cost  fallacy, the strong natural fear of losing  

  • what we already own and the tendency of our  brain to treasure all the things we possess.

  • A more famous example of the fallacy is the  Concordethe supersonic passenger plane.  

  • Building the aircraft proved to be very difficult  and expensive, but instead of shutting down the  

  • project, the British and French governments  continued funding it even though they knew the  

  • aircraft would not have any economic benefit. They  argued that they had invested too much to give up.

  • To test the sunk cost fallacy, economists  Hal Arkes and Catherine Blumer came up with  

  • an experiment using theater season ticketsThe regular price for the season was $15,  

  • but some people were randomly given discounts of  either $7 or $2. It turned out that the people  

  • who had paid the regular price attended more plays  than those who received a discount. Interestingly,  

  • the only ones who behaved rationally  were children under the age of 6.

  • Behavioral economists suggest that there are  three psychological reasons for our irrationality.

  • 1. Loss aversion: people prefer avoiding  losses to acquiring equivalent gainsmost  

  • avoid bets where they can win $50  because they could also lose $50.

  • 2. The desire not to appear wastefulthis is why some finish their food even  

  • when they feel full or don't  think it's particularly tasty.

  • 3. To ensure we do things we  fear we otherwise wouldn't:  

  • We might buy expensive gym membership to  make sure we actually go and work out.

  • Assuming you are immune to the Concorde  fallacy and you could completely ignore  

  • all investments you have ever made into your  education or getting to where you are today

  • What would you be doing differently  going forward? Can you identify any  

  • 'sunk costs' that are holding you  back from making those changes?

  • If you found this helpful, check  out our other videos and subscribe

  • If you want to support our workjoin us on

  • For more information and additional  contents, visit

Jimmy sells his catch at the local market. He  knows that he can sell only fresh fish, so he  

Subtitles and vocabulary

Click the word to look it up Click the word to find further inforamtion about it