The definition of "sunk cost" vs. "stunk cost"

[Minniman]

"Evolution is only a theory" returns 189,000,000 Google results.

 

 

Evolution is a theory ... that can proven by repeated testing with congruent observed results. That is how the scientific method works.

 

Oh, back to the topic. What was that again? oh yes ...

 

In economics, irrevokable contracts for a future commitment are considered sunk costs. The nature of guaranteed contracts is that they are irrevokable under normal ceteris paribus conditions. While it is a valid point that a player may be traded, one must view the likelyhood of that event. As the likelyhood approaches zero, the future commitment becomes a sunk cost rather than an optional or variable future expenditure. One must ask if Mauer or Nolasco are at that point or not.

 

One could make a conditional statement, "Barring an unlikely trade, those contracts are sunk costs." The point, in context, is that the player has a salary that is already a future commitment to be paid whether the player plays or not, and that contract need not be considered when fielding the best team.

[Otto von Ballpark]

Brock, is there any relevant baseball usage of the term "sunk cost", to you?

[Dr. Evil]

In a perfect world your highest paid assets are your best producing assets. It seldom works that way.

[drivlikejehu]

 

One could make a conditional statement, "Barring an unlikely trade, those contracts are sunk costs." 

 

No conditional statement is needed. The contracts are sunk costs... they could be exchanged as part of a transaction, but that transaction will reflect the fact that those costs were sunk (i.e., a team could unload a bad contract by taking on a different bad contract - which only confirms the fact that the cost was sunk).

[Jham]

Dear goodness, are there no accountants on Twins Daily who can resolve this issue once and for all?  Or are baseball blogs too nerdy even for number crunchers...  Excuse me, I have to reexamine my life path...

[drivlikejehu]

 

Dear goodness, are there no accountants on Twins Daily who can resolve this issue once and for all?  Or are baseball blogs too nerdy even for number crunchers...  Excuse me, I have to reexamine my life path...

 

I'm an attorney and CPA, specializing in fixed assets and accounting methods.

[PseudoSABR]

 

I'm an attorney and CPA, specializing in fixed assets and accounting methods.

Couldn't your definition of sunk cost be applied to any contract for which the paying party is liable? When posters refer to players and their contracts (future or not) as 'sunk costs,' the lack of return on those costs is the operative factor, not the mere liability for those costs.  It's great that you have credentials and that you're very certain about usage in your industry but I imagine there are more tactful ways of demonstrating the validity of your point.  

 

The point should be that 'sunk cost' is used colloquially in all kinds of discourse without adhering to its technical usage (which probably varies industry to industry). Trying to establish the upper hand in semantics seems unnecessary. 

[twinsnorth49]

I think it's time this thread is moved, all in favour say "aye".

 

"Aye"

 

The Ayes have it.

[drivlikejehu]

Ironic comments, pseudo, considering the confidence with which Brock erroneously lectured other posters on their use of the term.

 

The lack of return is certainly where the 'sunk' part comes in. Even in a business context, the phrase is colloquial rather than a term of art.

 

The reason it's not really open to interpretation is that the definition of an incurred cost (which may or may not be 'sunk' in colloquial American usage) is universal, applying to virtually all business activity on the planet.

[Minniman]

 

I'm an attorney and CPA, specializing in fixed assets and accounting methods.

 

I teach economics, so our definition may differ slightly, but we are pretty much on the same page.

 

Brock is correct that the term "sunk cost" is already paid for, but current economic thinking often includes irrevocable agreements to pay in the future as a sunk cost as well.

 

If the Twins suddenly cut all of their players, what they still owe players on guaranteed contracts would be sunk costs. Therefore, all MLB players have sunk costs. This often creates a sunk cost fallacy of logic when a team tries to play the most expensive players ahead of the best players or high draft picks over later picks.

[kab21]

The Twins need to approach the Ricky Nolasco situation (or anyone else) as if it is a sunk cost regardless if it fits his dictionary definition.  The Twins (or anyone on this board) should never say that he is too expensive to use as a RP'er because his contract pays him like a MOR starter.  They are approaching the point where they have very little chance of recovering that value in any way.  The Nolasco evaluation should essentially be based on 'he costs $0' for this particular role or we could call up X from the minors and pay them 500K and not continue to invest additional resources (roster spots, rotation spots, staff resources) in him.  The fixed cost is basically sunk.

 

It could be said that any long term contract is a sunk cost but most players have some chance of being productive enough going forward to return some value even if it isn't their full value.