Sunk costs and quasi-hyperbolic discounting: keeping profitable commitments by considering sunk costs

Purpose Managerial accounting education generally insists that managers should never consider sunk costs. This suggestion seems inconsistent with a common mode of thinking about future rewards: quasi-hyperbolic discounting. This paper aims to explore the conflict between sunk cost consideration and quasi-hyperbolic discounting and to illustrate when sunk cost consideration may be appropriate. Design/methodology/approach The author conducted three numerical experiments, i.e. simulated experiments based on analytical models, to demonstrate how it can be beneficial to consider sunk costs in some circumstances. All three numerical experiments assume quasi-hyperbolic discounting. First, the author tested considering sunk costs with future rewards that are certain. Second, the author tested considering sunk costs with uncertain future rewards. Finally, the author tested two different educational interventions to change decision-makers’ thought patterns. Findings The author found that considering sunk costs worsens decisions when there is bad news and improves them when there is good news. The author found that an educational intervention that partially dissuades managers from considering sunk costs improves decisions when bad news arrives and worsens them when good news arrives. The author also found that an educational intervention that reduces uncertainty improves decisions when bad news arrives and does not worsen these decisions when good news arrives. Originality/value The author provided numerical examples of situations in which considering sunk costs is valuable. The findings on educational interventions provide information about the tradeoffs of teaching that sunk costs should never be considered.

Stochastic Model on Three-Similar Units Three Phased Mission System with FCFS Repairs Pattern

The paper allocates a stochastic model on threesimilar units three-phased mission system. The developed system consists of units working in parallel, series and parallel configurations respectively. Initially, the three similar units are operational. Each component has only three states: good, degraded and failed. In this case, the single repair facility that repairs the units in first come first serve (FCFS)pattern has been thought of. Using Semi-Markov Process and regenerative point techniques, various measures of the system performance at each phase are obtained. The system has been analyzed graphically taking a particular case. Various conclusions are made regarding the reliability and cost consideration of the system at each phase as well as for the whole system(as combined Phase I, Phase II, Phase III).

Creating Virtual Communities That Work

The use and import of virtual collaboration (VC) has increased at an exponential rate. Despite its potential advantages, however, VC continues to be hindered by feelings of distrust, detachment, and even isolation among virtual team members. For each of these reasons, the present study analyzed more than 1,500 survey responses to develop best practices for current users and developers of e-collaboration software. More specifically, this study used an expanded variation of Vorvoreanu's (2008) Website Experience Analysis (WEA) to explore participants' views of the seven most popular VC programs in use today: Basecamp, Dropbox, Google Drive, iDoneThis, Join.me, Skitch, and Skype. Qualitative results of this study revealed the significance of (1) name recognition, (2) interpersonal facilitation, (3) clarity/simplicity, (4) cost consideration, and (5) mobile accessibility. The study's results were then used to develop five corresponding implications for both users and developers: (1) increased integration, (2) expanded physicality, (3) supplemental training, (4) financial entrée, and (5) utilized flexibility.

The influence of selected socio-economic variables on poultry farmers' choice of commercial and self-compounded feeds in Lagos area of Nigeria

The study aimed at examining the influence of some socio-economic variables on poultry farmers choice of feed types between self-compounded feeds and commercial feeds. Their choice was not affected by age, gender and experience in poultry business but was affected (P<0.05) by cost. The cost of commercial feeds was consistently higher than those compounded by the farmers themselves and the difference was statistically significant (P<0.05). It was then concluded that cost consideration was the major factor determining the choice of feed types by the farmers. It was also suggested that the survival of the poultry industry and its profitability depend on cost reduction which can be accomplished through self-compounding of feeds by the farmers. Suggestions were offered to this end.

Optimization of a Cascaded H-Bridge Inverter for Electric Vehicle Applications Including Cost Consideration

This paper presents a method to find the optimal configuration for an electric vehicle energy storage system using a cascaded H-bridge (CHB) inverter. CHB multilevel inverters enable a better utilization of the battery pack, because cells/modules with manufacturing tolerances in terms of capacity can be selectively discharged instead of being passively balanced by discharging them over resistors. The balancing algorithms have been investigated in many studies for the CHB topology. However, it has not yet been investigated to which extend a conventional pack can be modularized in a CHB configuration. Therefore, this paper explores different configurations by simulating different switch models, switch configurations, and number of levels for a CHB inverter along with a reference load model to find the optimal design of the system. The configuration is also considered from an economically point of view, as the most efficient solution might not be cost-effective to be installed in a common production vehicle. It is found that four modules per phase give the best compromise between efficiency and costs. Paralleling smaller switches should be preferred over the usage of fewer, larger switches. Moreover, selecting specific existing components results in higher savings compared to theoretical optimal components.