"Every garage sale is a funeral for someone's sunk costs." — David McRaney
How do I deceive me? Let me count the ways ... number one would be my belief that I make rational decisions. If only life were that simple. My decisions — and yours, unless you're a robot — are tainted by a slew of emotional missteps, including, perhaps most importantly, the "sunk cost fallacy." That's our human failing in which we put value on investments that can never be recovered. Simply put, we throw good money after bad.
George Bush displayed it in 2006 when he justified staying in Iraq after any possible benefit to the U.S. had long since faded. In his July 4 address, he stated, "I'm not going to allow the sacrifice of 2,527 troops who have died in Iraq to be in vain, by pulling out before the job is done." Or here's (anti-defense-contractor!) Bernie Sanders' rationale to keep supporting the boondoggle known as the F35 joint strike fighter: "It is, essentially, built." That was in June 2014, when Lockheed Martin had "only" spent half a trillion dollars and change on what Sanders called "the damn plane," and which, according to a RAND analysis, "can't turn, can't climb, can't run." Now it's more than a trillion dollars, with no end in sight for a plane that, around the same time as Sanders' statement, caught fire during takeoff at Eglin AFB in Florida.
Note that a robot George Bush or Bernie Sanders would never let non-recoverable costs affect its decisions. A smart robot would say, "What's done is done, the lives are lost, the money's spent; time to let go, move on and make decisions on the basis of future cost-benefits." That's the rational, unemotional thing to do.
Would that sunk cost decisions were limited to politicians! Ever said something like, "I can't let my four years of college go to waste," or, "I spent good money on this meal, I'm not going to leave half of it on the plate," or, "How can I walk out on him/her now after all the emotional investment I've made in this relationship?" Yeah, me too: hanging on to those shares in Sun Microsystems after its stock went south ... staying to the end of that truly awful 3D movie after paying $10.50 to see it. And on and on.
Hand in glove with "sunk cost" is "loss-aversion," our built-in bias to avoid loss more than to embrace gain. Tennis-great Jimmy Connors summed it up succinctly: "I hate to lose more than I love to win." Well of course. We're built that way. When our ancestors roamed the East African savannah, a couple of losses — running out of water coupled with a bad fall, say — could mean game over for you and your genes. Losses linger, wins not so much. I'm never as happy finding lost keys as I was unhappy when they were missing.
Our blindness to the folly of sunk costs drives wars, keeps crappy warplanes alive (not to mention the Concorde), makes us finish our plates when we're already stuffed and keeps us hoarding unused junk in our basements. But now we know what our delusion is, we can start making rational decisions, right? As if ...
Barry Evans ([email protected]) has spent far too much time researching this column to abandon it now.