italy you have to look at your car purchase as a sunk cost. choosing to sell it now because the price of 2014s is lower than when you purchased your 2013 is not rational. other factors such as depreciation hit when selling, potential to be upside-down on your current loan, cost of purchasing a different car, etc. are far more important.
Sunk costs - Wikipedia, the free encyclopedia
Quote:
In traditional microeconomic theory, only prospective (future) costs are relevant to an investment decision. Traditional economics proposes that economic actors should not let sunk costs influence their decisions. Doing so would not be rationally assessing a decision exclusively on its own merits. Alternatively, a decision-maker might make rational decisions according to their own incentives, outside of efficiency or profitability. This is considered to be an incentive problem and is distinct from a sunk cost problem.
Evidence from behavioral economics suggests this theory fails to predict real-world behavior. Sunk costs do, in fact, influence actors' decisions because humans are prone to loss aversion and framing effects. In light of such cognitive quirks, it is unsurprising that people frequently fail to behave in ways that economists deem "rational."
Sunk costs should not affect the rational decision-maker's best choice.
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