Comments on: Beating a Sunk Horse

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By: dreeves

dreeves — Sat, 04 Jul 2009 20:03:58 +0000

Found this on the web somewhere, from a book called “Why Smart People Make Big Money Mistakes”:

Imagine that you’ve got a ten-year-old minivan that needs a new transmission. The sunk cost fallacy tells us that you’re more likely to plunk down the money for the new transmission if you’ve recently sunk hundreds or thousands on repairs into your clunker before that. So ask yourself: If someone gave you that minivan as a gift yesterday, would you spend the money today to get it running? If the answer is “no” — because that large an investment is not worth it on its merit — then it’s probably time to think about buying a new car.

By: klochner

klochner — Thu, 02 Jul 2009 19:10:54 +0000

Yes it’s the pot as a whole, but part of my point was that there isn’t a “pot invested” fallacy in poker:

http://www.google.com/search?&q=%22pot+committed%22 (33800 results)

compare with:

http://www.google.com/search?&q=%22pot+invested%22 (198 results)

By: dreeves

dreeves — Thu, 02 Jul 2009 17:06:20 +0000

@pauljung: Thanks, yes, I see the ambiguity now. Replacing “driving” with “in a car” is better.

@klochner: Point taken but I’d emphasize that it’s only the size of the pot as whole that matters, not the specific amount you contributed.

By: klochner

klochner — Thu, 02 Jul 2009 16:32:08 +0000

re: pot-invested – the more common term is “pot committed”, which is a rational statement. It isn’t a classic sunk cost situation because the money you’ve put into the pot isn’t “spent”, and the value of calling is dependent on how much you’ve put in. Let’s say you’re deciding between call and fold. The value of a call is: v(call) = p(win|call)*v(win) – p(lose|call)*v(lose), where v(win) = v(pot), v(lose) = amount to call. This is commonly referred to as getting “pot odds”:

If I estimate my chance of winning at 1%, with $1 to call and pot size of $1000, I’m clearly pot-committed.

http://en.wikipedia.org/wiki/Pot_odds

By: pauljung

pauljung — Wed, 01 Jul 2009 16:10:58 +0000

While taking this quiz I was torn on #1 since I wasn’t clear on the statement. To clear things up I think a better phrasing would be:
“I would only spend that much time in a car to save the flight costs but since the flight is paid for I’d rather take it.”

The ambiguities of the statement as it is: (1) Is there a cost to the actual “driving”? On a road trip, it is not clear who will be driving. (2) Is that the ONLY reason the person would drive? There could be a high and positive utility of taking a trip with friends. For example I could imagine the following continuations of the phrase “I might do that much driving to save the flight costs”:

I might do that much driving to save the flight costs; I might also do that much driving to hang out with friends and go sight-seeing along the way.

or better yet

I might do that much driving to save the flight costs; I would definitely do that much driving to hang out with friends.