Sunk Cost Fallacy - when is it time to give up?

[PandaBear]

To me the most important thing is the certainty (or uncertainty).

If I know a car will have some eventual problem and I will just be annoyed instead of losing my job because it won't run, I can live with it and fix them over time if those fixes aren't more than its worth (i.e. putting $5k in to fix a car that is only worth $3k, regardless of what fix it is).

If I won't be able to tell in the next 12 months whether it will get me stranded and then have to pay random $500 here and there without knowing for sure the worst case scenario every 2 weeks, I will get another cheap reliable car.

Does that Hyundai have a known mechanical design problem in the powertrain? or just need to fix the power door and window gradually over time till you have a long weekend to watch 3 hours of YouTube and $100 worth of parts? If so then probably a keeper, if it is the engine and transmission that will be out soon regardless of how careful you maintain it, then sell.

 

[97prizm]

The sunk cost fallacy is the tendency to follow through with something that we’ve already invested heavily in (be it time, money, effort, or emotional energy), even when giving up is clearly a better idea.

Recent Warren Buffet post got me thinking about something. My daughter‘s high mileage Hyundai has needed a few repairs over the years. Nothing major, but as a broke college student to her even a couple hundred dollars here and there seems massive. She asked me if it was time to get rid of her vehicle after some repairs a while back and I said no not yet. She asked what my criteria was and I said a few things 1) it is so much money that the price and effort far exceed the unusable life left of the vehicle - engine, transmission, suspension, etc. 2) it’s breaking so often that it causes a hindrance to your life and ability to work and/or go to school. 3) you have the money and you’re just ready for something new.

Sometimes it’s hard to know when to pull the plug, but I think it’s important not to become emotionally attached to objects. I told her I would let her know when I thought it was time. But we aren’t there yet. What is your criteria for pulling the plug on an old beater?

I'm just about there with my cavalier. It still needs struts, likely brake pads etc. I think one of the gaskets is bad or pinched on one of the fuel injectors as the exhaust crackles. The headlights are useless. I've sunk close to if not $2k into it.

 

[PandaBear]

I'm just about there with my cavalier. It still needs struts, likely brake pads etc. I think one of the gaskets is bad or pinched on one of the fuel injectors as the exhaust crackles. The headlights are useless. I've sunk close to if not $2k into it.

Pads and struts are consumable not sunk cost. Headlight, really depends but you can probably say it is consumable too. You will need to spend those money even with another car over time.

 

[xmanjeff]

The sunk cost fallacy is the tendency to follow through with something that we’ve already invested heavily in (be it time, money, effort, or emotional energy), even when giving up is clearly a better idea.

Recent Warren Buffet post got me thinking about something. My daughter‘s high mileage Hyundai has needed a few repairs over the years. Nothing major, but as a broke college student to her even a couple hundred dollars here and there seems massive. She asked me if it was time to get rid of her vehicle after some repairs a while back and I said no not yet. She asked what my criteria was and I said a few things 1) it is so much money that the price and effort far exceed the unusable life left of the vehicle - engine, transmission, suspension, etc. 2) it’s breaking so often that it causes a hindrance to your life and ability to work and/or go to school. 3) you have the money and you’re just ready for something new.

Sometimes it’s hard to know when to pull the plug, but I think it’s important not to become emotionally attached to objects. I told her I would let her know when I thought it was time. But we aren’t there yet. What is your criteria for pulling the plug on an old beater?

those are very wise words spoken to your daughter , i dont think anyone can argue with that

 

[ATex7239]

The Sunk Cost fallacy is the fallacy part. Every calculation is going forward. What you spent yesterday is water under the bridge so to speak.

I think a big factor is how much you can do yourself vs pay someone else. At that point its not just the money but the huge inconvenience of always having to take it for repair, vs just working on it occasionally yourself.

My big issue is people take "current value" into consideration. If I have to put a $3000 something into a car thats only then worth $3000, is irrelevant. How much more use am I likely to get out of said car. If I can get greater than $3000 in use - which isn't many payments, then its worth it to me.

The other key to not getting Nickle and dimed is to not let maintenance get ahead of you.

I have a tracker on my phone and to date this vehicle has cost her or us (sometimes we cover things for her just to help her out as a gift) $5,675 in maintenance (oil changes, filters, tires, etc) or repairs (cat, cv axle, ac stuff, etc) over 3 years. It is not worth that much. But like you said it doesn’t necessarily matter. That total spread out over three years equals to $160 a month. Which is far less than a car payment is going to be and said car with a payment attached will still need maintenance items like brakes, tires, oil changes, etc. The amount spent already and vehicle value are not relevant in her situation. It’s how much life is left in the vehicle.

 

[JeffKeryk]

... And people assume that comparable used cars are in 100% good condition.

That's a BIG assumption.

When you want to commit money to something, you make assumptions, you have to. But you should know the scope of these assumptions and the problems that arise from being dishonest with yourself about them.

And the corollary; is the new car in question better than what you have, or will it perform like you need it to?

 

[Hohn]

When the cost of a repair event exceeds the ACV or....if the total spent over 12 months exceeds the cost of payments for the replacement vehicle?

I used to think this way, but now I reject it. Well, sort of, as I don’t believe in payments one year is far too short a timeline. I’ve had to put a lot of thought into this because I drive old cars and drive them a long, long time. So knowing when to pull the plug is a pretty big part of the package.

Here’s why I no longer think this way: the value of the car is not the value of the car. The value to me is not the value set my “the market.”

Let’s take the case of my old Odyssey, which I just paid a shop today to do HVAC work. I think the value of my Odyssey is somewhere around $3000, I honestly don’t know. But the value TO ME is higher than it is to someone else because I have 20 years of ownership and know all the history of it. I did almost all the work. I know where it leaks and when it started. I know what tires its had in which sizes and what worked best. I know the brake pads and all that. I know the fluid in the transmission and know when it was done.

The “market” is commoditizing an old vehicle with ZERO ability to account for that. The market thinks a 20 year old odyssey with 6 owners and a complete mystery on maintenance and care is the same as my odyssey. Obviously, as the one who knows that history because I lived it, it is far more valuable to me than the unknown history of a supposed substitute would be.

Which means that if my $3000 odyssey needs a $3500 transmissionmission that will have a 3 year warranty, the choices become: spend $3500 to get another three years (foreseeably) out of a van you trust and know, or put that $3500 towards a newer vehicle. Which you will not know at all and have no history with whatsoever.

What’s the value of a $3000 van needing a $3500 repair? On paper, it’s -$500. But in reality, the value is the cost of whatever the next-best option would be if you chose it.

So, what level of reliability could I attain on the market for $4000? $6000? $10,000? What level of trust would that money buy me?

Realistically, how much would I have to spend to acquire a vehicle I would trust as least as much? Add in some newer car niceties as far as tech and stuff, and the reality is that you simply aren’t going to buy a $4000 or $8000 car when your 20 year old van drops the transmissionmission. Nope, you’re going to buy a $20k or $25k or more vehicle. Which means that now you’re looking at several thousand a year in depreciation in addition to the very real possibility your $20k vehicle will ALSO need a reman transmissionmission.

I bought our GX460 as an “upgrade” and proceeded to have to do work on it that, had I gone to a shop” would have tallied $4000 or more. And then $1200 in tires. Was buying it a mistake?

I set a fairly aggressive goal of keeping my cost per vehicle below $2k per year on average in depreciation maintenance and repair.

I’ve been able to achieve that for 20 years with my van. My GX will achieve it with two more reliable years (which it seems quite likely to deliver. My Accord is much newer and will need some time to get the annual cost anything like that low.


But this works for me. It’s much more often than you think “cheaper to keep her”. Repair the old things that you know and trust. They are often deserving of that effort because the crass economics of the car market do NOT capture a correct valuation.

 

[HemiBenny]

What is your criteria for pulling the plug on an old beater?

When I start breaking things by throwing stuff across the garage because I’m just done. Then the confirmation will come when I get on here to rant about it and receive a message from @dnewton3 for language.

All kidding aside, for me it’s when the vehicle becomes untrustworthy or it’s too costly to continue spending time and money on it. (Especially if it’s just an appliance to get you from point A to point B)
If it’s a vehicle that you rely on daily, not a toy, frequently spending too much time and money on it is a big clue.

 

[fantastic]

I'll throw another two cents where it could make sense to buy another used vehicle...

If I have a $5k CUV & get some use out of it for several years >50k or so miles out of it, it'll cost $5k in one go to fix everything, while simultaneously that CUV commonly sells for $5k price tag with less miles in better shape then it's an easier decision to buy another. Most of the time for me I keep up on maintenance so a $5k bill would only come if it needs a transmission or something major at any single time.

 

[riverblue]

I used to think this way, but now I reject it. Well, sort of, as I don’t believe in payments one year is far too short a timeline. I’ve had to put a lot of thought into this because I drive old cars and drive them a long, long time. So knowing when to pull the plug is a pretty big part of the package.

Here’s why I no longer think this way: the value of the car is not the value of the car. The value to me is not the value set my “the market.”

Let’s take the case of my old Odyssey, which I just paid a shop today to do HVAC work. I think the value of my Odyssey is somewhere around $3000, I honestly don’t know. But the value TO ME is higher than it is to someone else because I have 20 years of ownership and know all the history of it. I did almost all the work. I know where it leaks and when it started. I know what tires its had in which sizes and what worked best. I know the brake pads and all that. I know the fluid in the transmission and know when it was done.

The “market” is commoditizing an old vehicle with ZERO ability to account for that. The market thinks a 20 year old odyssey with 6 owners and a complete mystery on maintenance and care is the same as my odyssey. Obviously, as the one who knows that history because I lived it, it is far more valuable to me than the unknown history of a supposed substitute would be.

Which means that if my $3000 odyssey needs a $3500 transmissionmission that will have a 3 year warranty, the choices become: spend $3500 to get another three years (foreseeably) out of a van you trust and know, or put that $3500 towards a newer vehicle. Which you will not know at all and have no history with whatsoever.

What’s the value of a $3000 van needing a $3500 repair? On paper, it’s -$500. But in reality, the value is the cost of whatever the next-best option would be if you chose it.

So, what level of reliability could I attain on the market for $4000? $6000? $10,000? What level of trust would that money buy me?

Realistically, how much would I have to spend to acquire a vehicle I would trust as least as much? Add in some newer car niceties as far as tech and stuff, and the reality is that you simply aren’t going to buy a $4000 or $8000 car when your 20 year old van drops the transmissionmission. Nope, you’re going to buy a $20k or $25k or more vehicle. Which means that now you’re looking at several thousand a year in depreciation in addition to the very real possibility your $20k vehicle will ALSO need a reman transmissionmission.

I bought our GX460 as an “upgrade” and proceeded to have to do work on it that, had I gone to a shop” would have tallied $4000 or more. And then $1200 in tires. Was buying it a mistake?

I set a fairly aggressive goal of keeping my cost per vehicle below $2k per year on average in depreciation maintenance and repair.

I’ve been able to achieve that for 20 years with my van. My GX will achieve it with two more reliable years (which it seems quite likely to deliver. My Accord is much newer and will need some time to get the annual cost anything like that low.


But this works for me. It’s much more often than you think “cheaper to keep her”. Repair the old things that you know and trust. They are often deserving of that effort because the crass economics of the car market do NOT capture a correct valuation.

This, 100%. It's a combination of economics, knowledge of and trust in the vehicle (a purely subjective but entirely logical valuation), and peace of mind.

 

[xspeedy]

You can buy a newer car, but that doesn’t mean it won’t have repairs or require maintenance. And newer cars depreciate and are more complex. I think repairing a beater not worth much is probably the least expensive path. Especially if the owner can do some basic wrenching and save only the most painful work for a shop.

 

[SC Maintenance]

I'll throw another two cents where it could make sense to buy another used vehicle...

If I have a $5k CUV & get some use out of it for several years >50k or so miles out of it, it'll cost $5k in one go to fix everything, while simultaneously that CUV commonly sells for $5k price tag with less miles in better shape then it's an easier decision to buy another. Most of the time for me I keep up on maintenance so a $5k bill would only come if it needs a transmission or something major at any single time.

I just spent a lot of time looking for a used car for my kid. Nothing for $5K I would own honestly - and I did look at that price point.

 

[fantastic]

I just spent a lot of time looking for a used car for my kid. Nothing for $5K I would own honestly - and I did look at that price point.

Right, Unfortunately there is a lot of junk at all prices but especially the lower price points.

 

[E150GT]

I never bring rationality into the equation

 

[amateurbob]

I just spent a lot of time looking for a used car for my kid. Nothing for $5K I would own honestly - and I did look at that price point.

What did you end up going with out of curiosity and if you don't mind sharing what it cost?

I went through the same process 5 months ago.

 

[JeffKeryk]

I just spent a lot of time looking for a used car for my kid. Nothing for $5K I would own honestly - and I did look at that price point.

If you find something decent for $5K to $6K around here, it may be sound but at lease need a set of tires, etc.
I got a clean, 130K 2008 CR-V for $5500, I think. I serviced it end-to-end, put 4 mid-tier tires and alignment, an engine mount, brakes all around and 1 lug nut. I got it for our house cleaner, a great gal. She loves it and can continue to take care of her family. Safely...

 

[Kurtatron]

I have a 1991 Toyota Previa manual transmission that I put a JDM engine in. It was $3000. Years later, I tried selling it. I couldn’t even get $1800 for it. I guess a manual transmission minivan is not a lucrative commodity to most.

But this minivan easily has 100k+ miles of life in it. The engine had nearly brand new compression numbers. 192psi new, and All four had 185.

So even though my van is only worth $1800 to the buying public, what other car can you buy for $1800 that has the durability of a Toyota pickup truck from the 90s with 90k miles on it?

The $3,000 investment was worth it to me, absolutely.

 

[SC Maintenance]

If you find something decent for $5K to $6K around here, it may be sound but at lease need a set of tires, etc.
I got a clean, 130K 2008 CR-V for $5500, I think. I serviced it end-to-end, put 4 mid-tier tires and alignment, an engine mount, brakes all around and 1 lug nut. I got it for our house cleaner, a great gal. She loves it and can continue to take care of her family. Safely...
View attachment 325165

I looked at a few CRV's of that vintage here. Super high miles, clapped out and most shipped in from "up north" - AKA quite rusty underneath. Maybe its just here? Yours looks like a winner to me.

I consider tires and brakes required for anything I would buy used. It actually drives me nuts the dealers all put the cheapest tires they can find on used cars so they can sell them as "new tires". I would likely just throw them away since there usually terrible in the rain.

 

[SC Maintenance]

What did you end up going with out of curiosity and if you don't mind sharing what it cost?

I went through the same process 5 months ago.

I ended up with another Xterra but wouldn't recommend one to others. Its takes some insider knowledge to get a good one, and there not for everyone anyway. Most of those are clapped out at this point also, but right place / right time I found a 13 that someone traded in for a new Defender - paid $10K +TTT.

Anything Camry, Rav, CRV or Accord around here are defered maintenance wrecks that people seem to think are still worth money.

Honestly the best "value" I think I saw were either 13-15 Pilots - although lots of those have fuel trim issues that people tell me means the valves need adjusting, but you don't know if the valves are burnt at that point, or high mileage but well kept older Lexus. Not interested in someone else's problems but at least those two categories seemed like people kept up on maintenance.

 

[D60]

... And people assume that comparable used cars are in 100% good condition.

That's a BIG assumption.

When you want to commit money to something, you make assumptions, you have to. But you should know the scope of these assumptions and the problems that arise from being dishonest with yourself about them.

This. I see people who want to sell a $3k car because it's got problems but they want to move into another $3k car.

In this instance, usually better to stay with the devil you know.