Marginal Thinking and the Sunk Cost Fallacy
The budget constraint framework helps us understand that most choices in the real world are not about getting all of one thing or all of another – choosing a point at one end of the budget constraint or all the way at the other end. Instead, most choices involve marginal analysis, comparing the benefits and costs of choosing a little more or a little less of a certain good.
Watch this video on marginal thinking to understand why it is a valuable tool for making optimal decisions. With everyday examples, Alex Tabarrok explains why thinking on the margin is one of the most fundamental economic concepts and how focusing on past decisions can lead to the sunk cost fallacy.
Source: MRU, https://mru.org/courses/principles-economics-microeconomics/marginal-thinking-and-sunk-cost-fallacy
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