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Salt and Sunk Costs

“You added a cup of salt instead of a cup of sugar to the batter??”

I’ll keep names anonymous, but I still remember hearing a friend tell me about her little sister who was just starting to bake and mixed up the sugar and salt. To put it in perspective for those that don't bake... you normally put 1 teaspoon of salt in brownies. 1 cup is 48 teaspoons. 1 cup of salt is A. LOT.

So? What should you do?

Fix your proportions. Add about 96 cups of sugar, 144 eggs, 48 cups of flour, ... By doing that, the batter you created with a cup of salt won't be wasted!

Or, maybe you should just throw the batter away.

I think you know the logical solution. But is it always so logical? How does this story apply to economics? Well it relates to a concept called sunk cost. Just because you’ve put time into these brownies, and you’ve used some of your precious butter, flour, and vanilla, it is ruined (sunk) and you can’t get it back. So, what should you do next? Should you still make brownies?

You should re-evaluate. How much benefit are you going to get from these brownies versus how much is going to cost you to remake the brownies (time, ingredients, etc.). If the benefit is still greater than the cost, then you should make them! If it’s 10pm and you are tired, so there is an additional cost of staying awake to complete your baking adventure or you have to go to the store to get more ingredients, you might not want to make the brownies.

Wait. Shouldn't you consider the fact that you had already put time and effort into making brownies? No! That is a sunk cost. You can’t get it back. It should not factor into your decision making. Just as if you make a bad business investment. You shouldn't stick with that investment just because you have invested in it. You should look at your additional future benefits versus your additional future costs and then make your decision.

Here is another example (this is closer to the one usually used in textbooks): You buy a ticket to a concert. You have no ability to resell the ticket, and none of your friends are willing to take it from you. The night of the concert, a friend calls you and has a free ticket to go to a cooking class. You would LOVE to go to the cooking class. In fact, you know you would have more fun at the cooking class than you would have at the concert. What should you do?

Go to the cooking class, of course! What? But you spent $100 on that concert ticket. So what? You can’t get that $100 back. It’s gone. You should weigh your two options and go to the cooking class. The price of the concert ticket is SUNK. Just like the batter with a cup of salt in it. You can’t get it back. It should not play into your decision making.

Let's return to salt. I don't mean to say you shouldn't put ANY salt in your cookies and brownies. In fact, I often get complemented on the dusting of salt I put on top. It makes your treat addictive.

This brownie recipe is from Jenifer on TastyKitchen and just slightly adapted. Previously, she says it was Food and Wine. I like to call it Chocolate Brownies with a Touch of Sea Salt, and it generally follows a normal brownie recipe.