Tyler and Alex at Marginal Revolution are on fire this morning! Please do pay them a visit for more discussion of the economics of the new Medicare bill (ugh). I also particularly like Alex’s comments about human psychology and the sunk cost fallacy, although I’m not entirely convinced that overcoming the sunk cost inertia was truly the choice of a rational economic agent. Consider this: Alex goes out to shop without his wallet, goes home to get it, and the traffic and drudgery of northern Virginia is so exhausting that it’s not worth it at the margin any more, given his current state. I’ve just made a totally marginal argument, with no appeal to sunk cost, yet he stays home and bails on the shopping errand.
UPDATE: I like the way Jonathan Wilde at Catallarchy put what I think is the same thing I was saying less eloquently:
All potential states of satisfaction are ranked on an individualís value scale and those actions that are expected to achieve the highest ranked state are pursued. However, the rankings are constantly reshuffled as the environment changes, personal preferences are altered, and time passes.
Alexís second trip to the store was simply a reappraisal of his circumstances at that time, and based on his own subjective preferences, he decided to take action to go back to the store.
Yeah, what he said.