Tuesday, January 4, 2011

The Sunk Cost Fallacy

Well, blagonet, much has happened since I lasted posted. The semester from hell is over! Two days after my last post, I turned in my last group project. It was one of the happiest days of my life. After that the rest of the semester was trivial, though my last algorithms assignment gave me quite a headache. (Asymptotic complexity is quite powerful--a few small changes made a test go from 12 minutes to 2 seconds) I had two finals, both of which were jokes--I barely studied and finished in half the allotted time. Since then I've been enjoying my break, getting reconnected with old friends and God at TCX(!), and playing tons and tons of video games. Steam isn't helping with its ridiculous deals. ($5 each for Knights of the Old Republic and Bioshock?)

But anyway, this isn't a blog about what's going on in my life, it's a blog about what's going on in my brain. And somehow I've gotten into some pretty deep thoughts despite all the Super Mario Galaxy 2. It all started when I noticed an ad on QC for a site called Quibids. It showed some big-name electronics items apparently being sold for deeply discounted prices, with timers counting down the last few seconds until they were sold.

Don't worry, I wasn't tempted to click on any of the auctions--I know a scam when I see one. But I was strangely curious about how it was a scam, so I did some Google-powered research. Apparently Quibids and other such "penny auction" sites allow users to bid in one-cent increments in fast-paced auctions for valuable items, which can result in their being sold for well below retail prices. The auctions have seconds to go, but each bid increases the time remaining. (Reminds me of a speed run challenge in SMG2) That all sounds well and good, except that you don't just make one-cent bids--you have to buy them, often for much more than a cent. And the money you spent on the bids is gone regardless of whether you win the item. I read stories about the nightmare this creates--people intending to try out penny auction sites eventually went away empty-handed after pouring money into an unwinnable auction.

This led to a Wikipedia crawl where I looked up some of the psychological and economic concepts at work, namely the sunk cost fallacy. (Also known as "throwing good money after bad") It refers to peoples' tendency to incorporate past spendings in their decision-making, even though this information is irrelevant. This manifests in many ways: the government feeling "locked in" to a project after pouring millions of dollars into it, even if it wouldn't be worth the remaining cost, Britain and France keeping the Concorde flying after it became economically inviable, or people continuing to fork over money for bids for an item that they probably won't (but might!) win. The only way to win these penny auctions is not to play.

But just Googling "penny auction" got me none of this information immediately. The results fell into three categories: penny auction sites, tips for how to win at penny auctions, and sites that claim to "expose" penny auctions but are actually disguised ads for a site (some disguised as blogs just like this!). It makes me worry about how many people actually believe this hysteria and are pouring their money down the drain hoping to win a $22.54 iPad. The internet seems to amplify just about every negative trait of human nature, and greed is no exception.

So that was an extremely random mental journey and I'm not sure why I wrote any of this. (But that's pretty standard for this blog) Until next time, remember that storing up treasures that won't last isn't very wise, but wasting resources with nothing at all to show for it is just stupid.

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