Seth Godin provides a fascinating example of how perceptions often overpower economics.
You have two pieces of land. One you bought for $1,000,000, one for $10,000. On which one should you develop a gas station?
Now consider that for a minute before I give the answer...
Cue the music.
I know. The one that's right next to the huge subdivision being put up, not the one next to the condemned shopping center. Does it matter how much the land cost to buy? No. Not at all.
So what does this have to do with anything? As Americans, we're hard wired to believe that markets are inherently perfect. Most politicians have said at some point, "I trust the market more than the government to decide that," myself included. But in fact the market, a collection of often irrational people acting in their own selfish interests, is far from perfect and needs curbs to keep it from running completely off the rails.
Even if you correctly paused and answered that the cost already paid doesn't matter, you were probably influenced by it and had to overcome what your gut instinct told you. The market makes some decisions well, and others rather poorly. The trick is knowing which is which.
