A while back, I needed a FireWire port to hook a camera up to my computer. I knew I had one in a box somewhere, so I spent...oh, I don't know how much time searching through boxes.

I didn't find it in any of the boxes I thought it was in, so I checked a few other places, and then re-checked some places I'd already looked again.

I never found it.

In the end, I ordered a new one off Amazon.com for about 10 bucks.

The really stupid thing is that the time I spent looking for the lost card was worth more than $10. And it didn't take me long to realize that it would be. But instead of ending my search, buying a new card, and getting back to doing something more valuable, I kept looking.

Why?

Because people hate losing things. We hate spending money on the same thing twice, even if it "costs" us more to find a lost item than to buy a new one.

Over at You Are Not So Smart, David McRaney posted an article about The Sunk Cost Fallacy:

Have you ever gone to see a movie only to realize within 15 minutes or so you are watching one of the worst films ever made, but you sat through it anyway? You didn't want to waste the money, so you slid back in your chair and suffered.
...

Sunk costs are a favorite subject of economists. Simply put, they are payments, investments or costs which can never be recovered. An android with fully functioning logic circuits would never make a decision which took sunk costs into account, but you would.

In my case, I had two sunk costs that I didn't want to abandon: the cost of the old card, and the cost of the time I'd already spent looking for it. But how much should those things have factored into my decision?

My options were A) spend $10 or B) spend more time looking. If my confidence were high that the time I'd already spent looking had eliminated enough places where the card might have been that I'd be able to find it with less than $10 worth of additional looking time, option B would have been a smart choice. But not because of the value of the time I'd already spent. And not because of the cost of the old card.

Consider David's bad movie example: you're sitting in a bad movie. Your options are A) suffer through more of the movie, or B) leave and do something enjoyable. If you only consider the future, which is the better option? B, of course.

If you stay and watch the rest of the movie, then instead of just wasting the price of the ticket and 15 minutes, you'll be wasting the price of the ticket and 2 hours. The price of the ticket is gone, no matter which option you choose. And yet, we tend to choose option A.

So how can we use sunk costs in marketing (without abusing our customers?)

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