I went skiing last Saturday. The condition wasn’t great. It was windy and cold. I knew that before I went, because I read the weather forecast. I went only because I bought a season pass last year before the season started. If I didn’t have the season pass and a friend offered me a free ticket, I would’ve chosen not to go because of the bad weather, and because after a busy week at work and working on a new initiative in the evenings, I would prefer sleeping in. But I still went. I wanted to get my money’s worth. Did I not know the cost of the season pass is a sunk cost? I did, but I still wanted to get my money’s worth. It’s hard to explain rationally. I admit I’m not rational.
This reminds me a story about economist Harry Markowitz. Harry Markowitz is the father of modern portfolio theory. The concepts of portfolio diversification and efficient frontier came from that theory. He won a Nobel prize for it. When it came down to making the decisions for his own portfolio, he said,
“I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it. So I split my contributions 50/50 between stocks and bonds.” – source
In the end, we are all humans. We’ve got to do what feels right to ourselves.
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