Information icon.svg Consider taking the RationalWiki Community Survey 2017 or see the results.

Sunk cost

From RationalWiki
Jump to: navigation, search
The dismal science
Economics
link=:category:
Competing Theme Parks

  $ Capitalism
  $ Communism
  $ Socialism

Rides And Rollercoasters
Vomiting Passengers

A sunk cost (also throwing good money after bad) is the resources (such as money, manpower, or time) that have been expended on a project and cannot be recovered. In analyses of failed or failing projects, a common practice (the sunk cost fallacy) is to allocate more resources (that might be effectively used elsewhere) solely because giving up would mean earlier efforts have been wasted.

The fallacy is an informal fallacy.

Explanation[edit]

Ignoring sunk costs and making decisions based on an analysis of likely future expenditures and potential successes will generally save money and resources in the long term by avoiding any additional expenditure on a project that is doomed to failure. From an economic point of view, what one has already invested is irrelevant to the decision of whether one should invest more. Either one expects a return on this new investment, or not. The earlier money is already spent, and should not enter into your decision.

Examples[edit]

Arguments based on the need to justify sunk costs have been deployed in scientific and political circles, generally in circumstances where a group of true believers has already lost the debate but continues to seek funding in an attempt to pull something, or even anything, out of a failed project.

  • The desire to continue the work of Pons and Fleischmann on cold fusion, long after it was discredited, is one prominent example.
  • "We must continue to fight the war in Vietnam, otherwise our soldiers will have died in vain."
  • "I bought those dresses, and you are going to wear them!"[1]

War on terror[edit]

A more emotive form of this reasoning figured strongly in American rhetoric on the war on terror, which often framed any proposed drawback from Iraq or Afghanistan as dishonoring the memory of the soldiers who had died in those countries.

International relations[edit]

In international relations, the term is used to describe resources that a state has put an area in an effort to show a serious commitment. The permanent military infrastructure that the United States has built in South Korea is a sunk cost designed to show North Korea that the US firmly committed to ensuring the region's stability.[2]

See also[edit]

External links[edit]

References[edit]

  1. Thaler, R. (2015) Misbehaving: The Making of Behavioral Economics. ISBN 978-0-393-35279-5
  2. Thomas Schelling, Strategy of Conflict