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Lecture 15

INST 354 Lecture Notes - Lecture 15: Jim Sasser, Sunk Costs, Tombigbee RiverExam

Information Studies
Course Code
INST 354

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INST354 Lecture 15: Sunk Costs Continued
When we behave as if our nonrefundable expense is equivalent to a current investment, we are
honoring a sunk cost. The diagram shows that at the decision point, the only choice
available that avoids the contradictions specified earlier is the one you judge to be the more
valuable—turning back. Honoring sunk costs is irrational. (We’re excluding the possibility that
you have motives other than personal enjoyment for going to the resort, or that you wish to
create the impression you are at the resort when you actually are not. The information
presented in the examples in this book is to be taken as the total information available to the
decision maker. Naturally, if there is other information, or if there are other reasons for engaging
in a behavior that are not specified in the examples, then the choices might be different.)
People honor sunk costs, as the examples below illustrate:
Finally, the day has finally come. You’ve got to think logically and realistically. Too much
money’s been spent, too many troops are over here, too many people had too many hard
times not to kick somebody’s ass. (Sergeant Robby Felton on the first day of the first Gulf
War, January 16, 1991; and a more general remark attributed to proponents of continuing
U.S. involvement in the 1960s war in Vietnam and the recent conflict in Iraq: “ ... our boys
shall not have died in vain”; quoted in Dawkins & Carlisle, 1976) Completing Tennessee-
Tombigbee is not a waste of taxpayers’ dollars. Terminating the project at this late stage of
development would, however, represent a serious waste of funds already invested.
(Senator James Sasser, arguing for further investment in an artificial waterway project
that, if completed, would be worth less than the amount of money yet to be spent to
complete it, November 4, 1981)
I have already invested so much in the Concorde airliner ... that I cannot afford to scrap it
now. (businessman quoted in Dawkins & Brockmann, 1980)
If these arguments are taken at face value, as compelling rationales for their conclusions
(invade Iraq, invest further in the Tennessee-Tombigbee Waterway project, pay more to develop
the Concorde airplane), the irrationalities are clear: Massive amounts of resources had been
invested in mounting the war; therefore, we can’t stop now, no matter what the current situation.
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