<p>Sunk costs indeed don't matter here:</p>
<p><span class="math-container">$T$</span> ... Trump, <span class="math-container">$H$</span> ... Hillary, <span class="math-container">$S$</span> ... stay at home</p>
<p><span class="math-container">$v$</span> ... valuation function, <span class="math-container">$p$</span> ... payment function, <span class="math-container">$u=v-p$</span> ... utility function</p>
<p><span class="math-container">$oc(x) = \max\{u(y)\,|\,y\in\{T,H,S\}-\{x\}\}$</span> ... opportunity cost function.</p>
<p>Assumptions: <span class="math-container">$v(H)=200$</span> and we normalize <span class="math-container">$v(S)=p(S)=0$</span>, so <span class="math-container">$u(S)=0$</span></p>
<p><strong>Scenario 1:</strong> <span class="math-container">$p(T)=0$</span>, <span class="math-container">$p(H)=100$</span></p>
<p><span class="math-container">$oc(T)=\max\{100,0\}=100$</span></p>
<p><strong>Scenario 2:</strong> <span class="math-container">$p(T)=p(H)=0$</span></p>
<p><span class="math-container">$oc(T)=\max\{200,0\}=200$</span> and <span class="math-container">$oc(H)=\max\{v(T),0\}$</span></p>

CC BY-SA 4.0
2024-12-13T11:26:18.053Z
2024-12-13T11:26:18.053Z
VARulle
<p>Usually when I am given opp cost questions its under the context that I have a fixed set of resources that I can spend on 2 goods in different proportions for example so it can easily be shown on a budget line, ppf or isocost curve. The opp cost here would simply be whatever I missed out on.</p>
<p>However I was given this question recently.</p>
<p>&quot;My company is giving me a free Trump conference ticket however at the same time there is a Hilary conference happening which I value at £200 but will cost £100. What is the opp cost for attending Trumps one&quot;&gt;&gt;&gt;&gt;&gt;&gt; answer is the net benefit 200-100=100</p>
<p>However given this same scenario but say I had already spent money on the tickets for Hilary (sunk cost) and I decided to still go to Trump, would my opp cost be 200 instead of 100 because we arent supposed to consider sunk costs for future decision making? In which case my opp cost is 200 not 100?........ now let me switch it up one more time..........what if after paying I decided to actually go to Hilarys instead of Trump, would I gain my opp cost of 200 back or would I gain the net benefit?</p>
<p>Im confused how sunk costs will come into play here when calculating opp cost and benefits gained cos I have always seen the opp cost as the benefit gained if the person made the other choice instead .</p>

<cost><opportunity-cost>
Sunk cost fallacy and Opportunity cost
user42141
# Sunk cost fallacy and Opportunity cost

(Asked by: username_0 on 2024-12-13)

Usually when I am given opp cost questions its under the context that I have a fixed set of resources that I can spend on 2 goods in different proportions for example so it can easily be shown on a budget line, ppf or isocost curve. The opp cost here would simply be whatever I missed out on.

However I was given this question recently.

"My company is giving me a free Trump conference ticket however at the same time there is a Hilary conference happening which I value at £200 but will cost £100. What is the opp cost for attending Trumps one">>>>>> answer is the net benefit 200-100=100

However given this same scenario but say I had already spent money on the tickets for Hilary (sunk cost) and I decided to still go to Trump, would my opp cost be 200 instead of 100 because we arent supposed to consider sunk costs for future decision making? In which case my opp cost is 200 not 100?........ now let me switch it up one more time..........what if after paying I decided to actually go to Hilarys instead of Trump, would I gain my opp cost of 200 back or would I gain the net benefit?

Im confused how sunk costs will come into play here when calculating opp cost and benefits gained cos I have always seen the opp cost as the benefit gained if the person made the other choice instead .

**Tags:** cost, opportunity-cost

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## 1 answers

### Answer by username_1 on 2024-12-13. Score: 2

Sunk costs indeed don't matter here:

$T$ ... Trump, $H$ ... Hillary, $S$ ... stay at home

$v$ ... valuation function, $p$ ... payment function, $u=v-p$ ... utility function

$oc(x) = \max\{u(y)\,|\,y\in\{T,H,S\}-\{x\}\}$ ... opportunity cost function.

Assumptions: $v(H)=200$ and we normalize $v(S)=p(S)=0$, so $u(S)=0$

**Scenario 1:** $p(T)=0$, $p(H)=100$

$oc(T)=\max\{100,0\}=100$

**Scenario 2:** $p(T)=p(H)=0$

$oc(T)=\max\{200,0\}=200$ and $oc(H)=\max\{v(T),0\}$


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