Hello everyone! We are back again today with another edition of Splinterland Economics - a series in which we introduce a basic economic concept and then apply it to Splinterlands. If this is your first time reading, just to tell you a little bit about myself: my day job is in an unrelated area but I consider myself a little bit of economics nerd - I read a little (or maybe way, way) more news than I should, double majored in econ, and am obsessed with optimization. I love the way Splinterlands is equal parts card game and resource allocation game. My goal with these articles is to share a little bit of what I know with you all.
Our topic this week is another big one. If you haven't heard of it before it could revolutionize the way you think. If you already have, hopefully this will provide a nice refresher, and/or give you some more insight into your Splinterlands and life decisions. Today, we are going to be talking about sunk cost.
What is Sunk Cost?
Sunk cost refers to a cost which has already been paid and cannot be recovered. You may recall that I like food examples (and particularly lunches), so let's go ahead with one: let's say you decide to splurge a bit and go to an all you can eat lunch buffet. Buffets are a little less common in the state of the world these days (I am still mourning the bankruptcy of my local salad bar chain, Sweet Tomatoes) but let's go with it anyways.
Once you go in to the buffet then you have presumably either paid, or agreed to pay the price of eating there. That payment can be thought of as in the past and unchangeable. For the sake of our example, let's assume that you aren't going to be doing anything like dine and dashing, requesting a refund, or starting a food fight and having to pay for damages. The amount you paid is your sunk cost. Other examples of sunk costs may include (but are not limited to) rent, equipment costs, or (to provide another dated example) nonrefundable plane tickets,
The idea of sunk cost leads us to the sunk cost fallacy. Or rather, avoiding the sunk cost fallacy. While making decisions, you should do your best to ignore any sunk costs which you have already paid or agreed to pay, and just choose your best option from there. Going back to our buffet example, continuing to eat past the point where doing so makes us feel worse "in order to get your money's worth" would be an example of the sunk cost fallacy. You already paid for the buffet, eating until you feel sick is somewhat similar to walking up to a random stranger and demanding that they punch you in the face.
So the next time you are faced with a choice, you would be better off forgetting what the sunk costs are. Stop going back for more buffet once you are full, don't go on that trip if it would mean having a miserable vacation, and please, PLEASE throw away that moldy sandwich instead of trying to nibble the good bits "because you already paid for it"...you're just going to give yourself food poisoning.
How do we apply it to Splinterlands?
Let's take an example from recent history - up until this past December water magic was a huge part of the meta and very popular, in large part due to Alric Stormbringer being usable for free by all accounts. With the release of Chaos Legion, new summoners replaced Alric and water magic became much less popular. This severely impacted the value of one of the rewards cards, Venari Wavesmith, which slowly dropped from $5-6 to around $3. At this point anyone holding Wavesmith had a choice - either sell it for less than it was worth recently, or hold it and use it or rent it out.
This is actually a personal example for me, because I had purchased a Wavesmith a few weeks earlier for $6, back before the format changes had been announced. As much as it hurt me to take the loss and move on, I sold my copy. Yes, it was possible that the price could recover, and if you strongly believed that then holding on to that card would have been a reasonable decision. However, the important thing to do is to make your decision while ignoring the fact that you paid a relatively large amount of cash for a card which is now worth less. My prediction was that the price would stay low for an extended amount of time, so selling my card would be for the best. Today, Venari Wavesmith sits at around $.25. Taking a 50% loss hurts, but not as much as taking a 95% loss!
There are plenty of other ways in which you should be mindful of sunk costs while playing Splinterlands. Make your purchasing and selling decisions based off of where you think prices will go in the future, and not how much you paid for them or how much they were worth just last week. If your rentals get cancelled out at the end of the season, don't ragequit and immediately log off - be sure to take advantage of the higher league DEC gains before those cards get returned.
Why should we care?
I can't guarantee that you will see enormous gains by making your decisions while avoiding the sunk cost fallacy. However, I can say that if you do so, then you will be able to look back later and tell yourself that you made the best possible choices that you could have made with what you knew at the time. Being mindful of sunk cost will allow you to more consistently make rational decisions about how to best allocate your assets, and at the end of the day that's all you can ask for.
Moving Along
So last week we talked about opportunity cost, and this week we talked about sunk cost. I can already hear you thinking "gosh, this guy only writes about costs!" Don't worry, we'll move on to some other areas next week! But in the meantime, if you have any suggestions or comments on this article or on possible subjects for future articles, please leave a comment below!
Thank you so much for reading all the way to the end. Interested in seeing some more of my writing in the future? Be sure to give me a follow! In the meantime, if you'd like to see some of my recent posts:
Chaos Legion General Sale Plans and Goals - Laying out some of my goals for 2022.
And Now For Something Completely Different: Using Wood Nymph in Battle! - My entry into last week's battle challenge, a matchup featuring Wood Nymph.
Splinterlands Economics: Opportunity Cost - An introduction to the concept of opportunity cost, and how it relates to Splinterlands.
Thinking about giving Splinterlands a try but haven't signed up yet? Feel free to use my referral link: https://splinterlands.com?ref=bteim, and be sure to reach out to me if you have any questions!