2019/10/16 by Ryan Doody · 1 citation
Economics, Econometrics and Finance · #Housing Market and Economics #Economic Theory and Policy #Fiscal Policy and Economic Growth #Fallacy #Sunk costs #Philosophy #Economics #Epistemology #Neoclassical economics
paper · pdf · doi:10.3998/ergo.12405314.0006.040
openalex created_date 2019/07/12 · openalex publication_date 2019/10/16 · openalex updated_date 2025/11/06
Business and Economics textbooks warn against committing the Sunk Cost Fallacy: you, rationally, shouldn't let unrecoverable costs influence your current decisions.In this paper, I argue that this isn't, in general, correct.Sometimes it's perfectly reasonable to wish to carry on with a project because of the resources you've already sunk into it.The reason?Given that we're social creatures, it's not at all unreasonable to care about wanting to act in such a way so that a plausible story can be told about you according to which you haven't suffered, what I will call, diachronic misfortune.Acting so as to hide that you've suffered diachronic misfortune involves striving to make yourself easily understood to others (as well as your future self) while disguising any shortcomings that might damage your reputation as a desirable teammate.And making yourself easily understood while hiding your flaws will sometimes put pressure on you to honor sunk costs.1.For a collection of psychological studies to this effect, see Arkes and Blumer (1985), Garland (1990), Moon (2001), Staw and Hoang (1995).For a collection of anecdotal evidence, please consult my mother.Also, Econ and Business students actually appear to honor sunk costs with the same gusto as the rest of us; learning about the fallacy seems to have little effect on one's propensity to commit it (Arkes and Blumer, 1985).(See, however, Tan and Yates, 1995 for evidence to the contrary.)