Sunk cost is a term from economics which represents the money you have spent that you have no way to get back. Since the money is already spent it should not impact future decision making. It is primarily used to avoid sticking to something just because you have already spent a lot of money on it.
Sunk cost in decision making
The point of considering sunk costs separately from potential future costs is to make better decisions. Your choice should be based on the expected value of any costs you have not paid yet, not the money you have already spent that you can’t get back.
Sunk costs in WoW
In goldmaking you will typically incur sunk costs whenever you buy an item. Once you have bought an item you will be put in situations where the price decreases. This should not happen too often, but it is unavoidable in the grand scheme of things.
In these situations you should avoid feeling too attached to the gold you have already spent. Focus on how you can maximize the value of the gold and items you do have.
Ultimately this ties back to the concept of making decisions with positive expected value. If your decisions backfire your goal is to maximize the gold you can get.
Dealing with price decreases
So how do you deal with it if the price moves against you? I usually try to maximize the value I can get from the items I have. What is the highest price I can sell the item for? How do I sell it to maximize the value?
These are the questions you should focus on and none of them are based on the price you actually paid. This is also why I prefer to not use avgbuy in my operations, but rather just use the market value. This will automatically adjust my prices down if needed or up if possible. Avgbuy will in some contexts represent a sunk cost so I think it should be kept out of any future pricing decisions.
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2 thoughts on “Goblin Mindset: Dealing with sunk costs”
Can you set up your sale operation to compare dbmarket with your avgBuy to determine an acceptable sell price? I picture something like:
max(0.8*dbMarket, 1.15*avgBuy, 1.10*avgBuy, …etc)
My understanding is that this would see if you can sell for >= 80% DB market. If not, it will see if you can make 15% margin on your average buy price. If not, it would try 10% and you could continue the string until you get to your bare minimum sale price even if it is something like 0.85*avgBuy.
Is my logic correct? The struggle I have is that my big pretty stacks cost more per unit that the people selling in small quantities at less than my minimum specified dbMarket cost and it prevents me from using TSM to automatically post; I have to use the default WoW UI which is cumbersome. For example, but operation may want to post at no less than 80% dbMarket but there will be many auctions up that are less than 80% but in small quantities.
You can’t do that using a max formula as that would always evaluate to the largest source, but you could use a set of nested ifgt() functions to make it work. That being said it is much easier to just have your minimum price as your actual minimum price and then your normal price as what your preferred profit margin is. For materials I aim for a minimum profit margin of 20%.
I prefer to post all my stuff at or very close to 100% dbmarket in nice stacks. I always get some sales. If you are selling in large stacks you can pretty much ignore the smaller stacks and their pricing. If you set it to “post at minimum” if the price is below minimum I find that is by far the best approach for current expansion materials.