Question

Darnell has plans to go to a play and already has a $50 nonrefundable, nonexchangeable, and nontransferable ticket. Now Vicky, whom Darnell has wanted to date for a long time, asks him to a concert. Darnell would prefer to go to the concert with Vicky and forgo the play, but he doesn't want to waste the $50 he spent on the play ticket.

From the perspective of an economist, if Darnell decides to go to the party with Vicky, what has he just done?

a. Incorrectly allowed a sunk cost to influence his decision
b. Made a choice that was not optimal
c. Correctly ignored a sunk cost

Answer 1

Answer:

c. Correctly ignored a sunk cost

Explanation:

The $50 he spent on the ticket is a sunk cost. Independently of his decision (go to the play or go with Vicky), the cost is already done.

He decide to go to the concert beacuse he prefers it than go to the play. He maximizes his utility, as he would not recover the $50 in any way. In the utility calculation, the sunk cost has no influence.

He has correctly ignored a sunk cost, not letting it to influence in his decision.