Jump to content
Objectivism Online Forum

Sunk costs and opportunity costs

Rate this topic


Recommended Posts

I was just thinking about this the other day, and thought I'd start a topic on the subject as these concepts are often forgotten in their normal usage, and I thought it would be interesting to explore whether they apply to human interaction as well.

I would argue that both types of costs do play a role in interpersonal relationships (of any kind), but are probably not thought of in this way and frequently overlooked. I'll start with sunk costs as those tend to be often forgotten in economics :)

Just to make sure we're all on the same page, with sunk costs I mean costs which have already been incurred. I use "cost" very figuratively here, as any investment of time or energy. Economically speaking, the way sunk costs are relevant is that it is a reminder that what matters at the end of the day is what something is worth today, and not what you originally paid for it (i.e. the sunk cost that has already been paid). The money has already been spent and you can't get it back, so it is absolutely pointless to make decisions on the basis of what something was originally worth, rather than what it is worth now. In other words, it concerns the proper way to recognize losses.

Now, although it's not entirely analogous to a relationship, I think there is enough overlap here that it can be helpful to also apply it to interpersonal relationships. Let's say we have a friend X. Basically, what sunk costs refers to is that it doesn't really matter how much you originally (or over time) invested in the friendship; what matters is how valuable it is today in terms of how much it furthers your Life. I think that is something worth stressing because I know from personal experience that it is very easy to get caught up in how much you used to value something or someone, and lose sight of the fact that today it's not worth the same as it used to be.

The main way in which sunk costs are different for relationships is that shared experiences and invested time and energy is not worthless in the same way it is for some purely economic investment, and definitely can contribute towards the total value a relationship brings you, because you should be integrating the full extent of the relationship rather than the immediate present. However, I do think that the longer ago something happened, the less valuable it generally is (its value is discounted), as more recent events are more indicative of future ones, so I would argue that the more recent value is probably dominant and most of the old investment only matters at the margins (i.e. a shared past won't rescue a really bad relationship, but can definitely add value if things are otherwise good).

Opportunity costs are probably a little less controversial, in that they merely refer to the recognition that we have alternatives, and that the true cost of any action should include whatever else we could have achieved with the same time/energy investment. I think that is a very important point to stress, though. Considering Life is of limited duration, it is essential to always be mindful of whether you are most optimally spending your scarce time and energy. I think that is probably the greatest argument to be made against, say, slacking off. It's not directly harmful to you, but you are still losing out on all the things you could have achieved if you had worked harder.

In the context of relationships it mostly comes into play when people spend a lot of energy pursuing a lesser value (over a greater one) and then try to tell themselves that they didn't lose out on anything because they still got some value. Opportunity costs are the recognition of the fact that you do lose out in a very real way by doing this, because you lose the alternative you could have chosen.

Link to comment
Share on other sites

A related thought: a value is something one acts to gain and/or keep (that furthers your life if it is objective). But life goes primarily in one direction, forward, so at any given moment you need to pursue things that are objectively valuable at that time. It doesn't do you any good to pursue something that used to be a value, but no longer is, in the same way as a meal you've already eaten is no longer nutritious and will not sustain your body even if you really enjoyed it at the time.

Certain values are certainly persistent in the sense that they can continue to provide values for a long period of time, but it is the ability of this value to sustain your life in the present (and its projected ability into the future) that really, objectively matter the most. And I think in that way we do have a fairly good comparison between what is meant with a sunk cost; that a value's current value is what matters and not its past value, because you cannot use something that is no longer there to sustain your life.

Now, there is certainly (emotional) value in past events and experiences (I'm just not sure to what extent that is objectively valuable for life qua man... I mean, I value these things, but I can't articulate why that is (and why it is right to feel that way, if it is). But one question with that, too, is whether an emotional reaction to something you valued in the past requires you to also still actively pursue that value today... I would be tempted to say that this is not necessarily the case, as many things that happened in the past are very emotionally satisfying to think about, but when you look back at an old friend, for example, you don't necessarily need to still be their friend to think fondly of those times and derive emotional value from those memories. People can certainly think back on something that happened in the past and enjoy the memory, let it reinvigorate their spirit, but that seems like it is completely separate from whether or not you still possess these values (whether they were people, or places you visited or whatever else) today. You can certainly derive value from a past value even if you still have access to that value it today; but I don't think it is necessarily required, either.

Otherwise people couldn't rationally value, say, a dead friend. You may say that a live friend is probably a higher value (everything else being equal), but that is exactly my point; the live friend would be more valuable today because he can keep providing value into the future. In other words, I think it is important to recognize that when we talk about (objective) values, we mean a value sustaining Life today, and into the future.

Another way of saying that is: you certainly couldn't derive all value from past relationships and friendships, right? That would be a pretty sad way to live, if all you had left was remembering how good things were in the past, and nothing to look forward to. I think that may be a better way to state it; that because Life is a process that moves forward (and not backwards), it requires values that are objective values in that same frame of time. And while things that happen in the past can genuinely provide value (either intellectual because you can think about it and learn from it, or emotional), it seems it couldn't truly substitute for something that is valuable today.

Kind of in the same way as your GM shares that lost a lot of value really aren't worth what you originally paid for them any more. You may have emotional attachment to them, still, and that could make them (marginally) more valuable, but it is ultimately no substitute.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...