Front Page Titles (by Subject) The Subjectivity of Sunk Costs - Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works
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The Subjectivity of Sunk Costs - James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory, Vol. 6 of the Collected Works 
The Collected Works of James M. Buchanan, Foreword by Geoffrey Brennan, Hartmut Kliemt, and Robert D. Tollison, 20 vols. (Indianapolis: Liberty Fund, 1999-2002). Vol. 6 Cost and Choice: An Inquiry in Economic Theory.
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The Subjectivity of Sunk Costs
I have referred to cost in any logic of choice as “subjective” and to cost in any predictive science as “objective.” In a preliminary discussion in another volume,2 I employed the subjective-objective terminology ambiguously, because I failed at that time to distinguish the separate dimensions of cost within these related but quite different settings. Cost in the predictive models of economics must be objective. If cost is introduced into a logic of choice, however, it is obviously subjective. This has been repeatedly emphasized by some of the LSE scholars whose works were mentioned earlier, and notably by G. F. Thirlby.
The consequences of choice, the results of decision, enter the individual’s experiences as subjectively valued events, even though, as noted, there may also be physical repercussions to the decision. If a commitment is made and things happen, such happenings affect the individual’s utility—quite independently of the fact that they cannot be avoided. The individual suffers utility loss as a consequence of a prior decision even if, on balance, the decision was itself fully rational. This suffering is a subjective event whether it be regrets at what might have been or pain at what is. Strictly speaking, only this subjective choice-determined cost squares fully with the economist’s concept of “sunk cost” or with Jevons’ “bygones.” Since choice has been made, this cost is irrelevant excepting insofar as the experience may modify anticipations about choice alternatives in the future.
In this choice-influenced sense, cost is related to choice ex post, but it is not personally tied to the chooser or decision-maker. This is an important distinction that has contributed its own share in the general cost-theory confusion. As we noted earlier in connection with the first-listed attribute of choice-influencing cost, the opportunity cost must be borne by the decision-taker himself if choice is to be affected at all. Indeed, in this context, cost can be borne only by the chooser; the whole notion becomes meaningless otherwise. By contrast, the consequences of choice—the utility losses suffered as a result of a decision—need not be endured only by the chooser. Because these consequences are always realized after choice, the chooser himself may be considered a different person once the consequences of choice are realized. Even when this is neglected, however, there remains no formal connection between the person taking a decision and the person or persons who suffer utility losses as a result. Those who “bear the burden”—even though bearing this burden is a subjective experience—need not be those who undergo the “agony of choosing.”
[2. ]See my “Public Debt, Cost Theory, and the Fiscal Illusion,” in Public Debt and Future Generations, James M. Ferguson (ed.) (Chapel Hill: University of North Carolina Press, 1964), pp. 150-62.