Sunk costs, the COVID surge, and non-refundable holiday air tickets

Holiday gatherings, the COVID-19 surge, and the sunk cost fallacy: Why you should cancel your Thanksgiving travel plans even though you’ve already purchased non-refundable air tickets. Coronavirus cases are surging out of control. In many states, hospital beds are nearly full, and health care workers are overwhelmed. And because of the 12-day lag between infections and hospitalizations, things are about to get dramatically worse. When that happens, we’ll face heart-wrenching triage decisions like we saw in Italy in March. Some will be left to die unattended, others turned away. Non-COVID medical emergencies will get short shrift. The Federal government seems unwilling to act.

Staying healthy is up to us. There was never a good time to get COVID. But the payoff from avoiding infection has never been higher than right now—not just because hospitals will soon be overwhelmed, but also because an effective vaccine may be only months away. The surest way to avoid infection is to hunker down to the greatest extent possible and mask up when forced to venture out. Germany, which mounted Europe’s most successful effort to contain the virus, released this helpful public service message:

Most important, avoid holiday travel at all costs! Those most willing to risk infection will be disproportionately represented among Thanksgiving travelers. The most risk-averse, and hence healthiest, among us are least likely to risk air travel for holiday parties. But what if you’ve already bought non-refundable air tickets for a Thanksgiving reunion with loved ones? The price of those tickets is a sunk cost–meaning one that you cannot recoup. Rational choice theory says to ignore sunk costs. But many fail to follow that advice.

In @R_Thaler’s celebrated example, you’re about to depart for a sporting event 50 miles away when a heavy snowstorm begins. If your ticket is nonrefundable, your decision about whether to make the trip should not be influenced by the amount you paid for it. Yet a fan who paid $100 for his ticket is significantly more likely to make the dangerous drive than an equally avid fan who happened to receive his ticket for free. The first fan is almost surely guilty of the sunk cost fallacy. Ignoring sunk costs is psychologically difficult. But it’s what smart people do. There are many good reasons to regret canceling a long-anticipated reunion with loved ones. But reluctance to waste a ticket you’ve already paid for isn’t one of them.

Questions based on sunk-cost fallacy:

1. You are planning a 300 mile round trip to Washington. Except for the cost, you are completely indifferent between driving and taking the bus. You don’t know how much it would cost to drive your car, so you call Hertz for an estimate. The person you speak with tells you that for your make of car the costs of a typical 10,000 mile driving year are as follows: Insurance $1,000, Interest $3,000, Fuel & oil $2,000, Maintenance $1,000 for a total of $7,000. At what round-trip busfare will you be indifferent between driving and taking the bus? a. $210. b. $120. c. $90. d. $60.
2. Sean and Cedric have the same preferences and incomes. When Sean received a painfully tight pair of shoes as a gift from his father, he gave them to the Salvation Army. When Cedric bought an identical pair of shoes for $200, he continued wearing them despite their being painfully tight.  This suggest that. a. Sean appears guilty of the sunk-cost fallacy. b. Cedric appears guilty of the sunk-cost fallacy. c. shoes are an inferior good. d. shoes are a normal good.

Source: https://twitter.com/econnaturalist/status/1328103700997562368, https://ourworldindata.org/coronavirus/country/united-states?country=~USA#what-is-the-daily-number-of-confirmed-cases, The Atlantic: The Worst Day of the Pandemic Since May