Cover Charges and Other Bar Economics

This weekend, we went to a bar that had a $5 cover charge. Once inside, we bought a round of drinks. And another. We were having fun with some friends, and I remembered we had beer at home.

I said, "Bryan, let's go home and drink some free beer!" Well, that was not the right thing to say. We paid for the beer, so it's not free.

I continued my non-PhD thought process and said, "Let's get one more round since we paid $5 to get in!" Again, not right.

Bryan explains that the $5 cover charge is a sunk cost, so it shouldn't have any bearing on our current decision making process. It's a common misconception called the Sunk Cost Fallacy.

Bryan continues, it should be as if we got in free; it's essentially the same. What you want to think about is the benefit of being there for another hour versus the opportunity cost of being there for another hour. Because the cover charge is something we've already incurred, it does not really affect the cost or benefit of being there for another hour.

And who says economics doesn't relate to the real world?