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Rational Investments and Sunk Costs

Decisions are most obviously less than perfectly rational while: (1) you take a shortcut through a dark alley at 3:00 am to get home faster. (2) a brilliant student majors into art history in place of economics. (3) prisoners on death row in Texas know that tobacco causes cancer but continue to smoke. (4) a newly-engaged couple spends a year’s income onto an engagement ring. (5) financial investors hold onto a losing stock till the price originally paid is exceeded.

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