Downsizing and the Sunk Cost Fallacy

Two of the major obstacles to successful downsizing are the practical and emotional costs of getting rid of “stuff.” We baby boomers have spent years acquiring our stuff and we are reluctant to part with it. I have less of that problem now than I used to. Yet I still struggle with discarding things that to me should have monetary value. If I give my stuff away (or even throw it away), I am losing that value. Thus enters the “sunk cost fallacy.”

According to behavioral economists, poor decision making on matters of money is often caused by the “sunk cost fallacy.”  People who have spent money on some product (the “sunk cost”) feel obligated to continue to own that product for fear of “wasting” their money. This is wrong. Your future behavior should not be influenced by expenditures that cannot be recovered, no matter what rational choice you make. If any money has been wasted, it was because you purchased the product to begin with. The damage has already been done. Now you must move on.

An example often used to demonstrate the sunk cost fallacy is the purchase of a ticket to a future event that you really won’t enjoy:  Having paid the price of a ticket, should you suffer through a concert or movie that you don’t want to see and won’t enjoy? Or despite having paid the price of the ticket, should you use your time to do something more fun?

The irrational thinkers – those who think about the ticket cost already incurred – will force themselves to attend the concert or movie. To them, it would be “wasteful” not to. That makes little sense because whether you attend or not, the cost has already been incurred and cannot be recovered. Your future behavior should be guided by what is best for you without regard to the money already spent and lost.

This brings us back to downsizing and getting rid of your stuff. What about those old clothes in your closet, that TV in the spare room you don’t watch anymore, or the five tennis rackets in the garage? Whatever decision you make on discarding or giving away an object, it should be based on whatever pleasure keeping that object will give you in the future. Most of our stuff stacked up in an attic, closet, basement, or garage that has not been touched in years is unlikely to give us pleasure in the future. It will only weigh us down when we downsize or move our residence in retirement.

So when you make the decision to keep or discard, forget what the “stuff” cost you. That is a sunk cost. You cannot recover the cost by keeping the stuff. Free yourself from illogical thinking. More important, free yourself from the stuff.

That’s the thought process I’m trying to maintain as I go through years of my stuff. The attic is a challenge to come. Wish me luck!


Comments

  1. averagejoe says

    The secret is never to have purchased the ‘stuff’ in the first place. I buy one thing at a time and hold it till it is kaput! I don’t go in for ‘trends’. My 42 inch TV was purchased in 1995 and it works fantastically. My computer is 5 years old-a bit slow but I can hold on for another year. I just replaced my 5-4 year old digital camera (after it had already been repaired under warranty) but only because the same screen lines were appearing and warranty was expired. Plus, it needed a new battery. Rather than repair it or spend $50 for a battery, I replaced it @$149 plus $20 rebate. I’ve sold the old camera for $5 bucks (it still works OK).

    I have one item of everything. One item goes out, then another item comes in. No attic mess nor garage overload over here. I despise clutter.

    In the near future, however, I do want a digital reader and a smart phone but I’ll wait. Right now, my iPod is a few years old also, but as I’ve said, it works fine, fulfills my needs and works great.

  2. Kathryn says

    I recently went through the process of liquidating the mobile home and personal effects of a friend who died.

    She had a 2-bedroom mobile home and was a woman of fairly modest means, yet it was quite a process to move her things out.

    After that, I decided I didn’t want to burden anyone with all MY stuff. My husband and I don’t have kids, so I think to myself, “Either I use it, or I donate it and take the write off, or I sell it at Half Price Books or amazon.com or on eBay myself before I leave it to someone else to do so.”

    Even with that commonsense game plan, I still find it difficult to let go of my stuff. Those were the Barbies I got when I was 12! That was the piano my dad bought me!

    I can’t say I have an easy time of letting go of some of those things with sentimental value. Maybe I never will. I just decided it’s a process that circles back, again and again.

    I just keep at it, a little at a time.

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