While indulging in some rare leisure time I found myself thinking about the Sunk Cost Fallacy.
This fallacy as I wrote about previously describes the human tendency to weigh a decision based on the investment already committed rather than based on competing opportunities moving forward.
As an example if a man were to start building a cabinet from scratch and then come across a serviceable equivalent abandoned on the side of the road, would he pass it by because he had already invested several hours and purchased much of the materials for the incomplete cabinet? Assume for ease of argument that the abandoned cabinet meets his needs and he is driving a truck that can haul it.
If he snubs the abandoned cabinet because he has already made the investment in the yet-unfinished cabinet at home he would be described as having succumbed to the Sunk Cost Fallacy. He is making his decision based on a comparison of the costs committed in the past rather than a comparison of the benefits to be obtained moving forward.
What if there is more than meets the eye?
While the decision is in isolation suboptimal, what do we find if we examine it not as an atomic decision divorced from the rest of life but as just one decision in the continuing operation we call life?
If the man does this frequently he may be described as someone who does not finish what he starts. By avoiding the Sunk Cost Fallacy he will save money and time, both of which matter a great deal, but he will not be seen as a finisher. This may well result in certain social opportunities not becoming available in his future. I will not assign specific weight to opportunities that could have happened but don't, but there is a real cost to such restriction.
Our beaker-and-spreadsheet society is invested in the idea that events can be repeated and examined. Where would we be after all without science? For a thing to be repeatable it must have a beginning and an end; it must be liftable as a unit with each instance identical to the others.
This is observationally true for some things. It is very useful for some things. In our enthusiasm we assume it must be true for many things.
That wicked seductress, economics, employs game theory to examine how people make decisions in atomic, repeatable "games." A controlled environment with exhaustively-known parameters is erected, college students of reduced circumstances are shuffled in, and priests with clipboards purse their lips as they record what transpires.
The students are given the rules and informed that a payout between a certain range will be forthcoming. They devise plans & press buttons accordingly, then modify their behavior in response to the results. After a certain number of turns the game is over. Perhaps a new game is run to see how well the students learned from the first game or adapt to changes in the ruleset. Eventually small bills are pressed into the students' palms and they shuffle out the door. For them, it is over.
For the clipboard priests it is not over. They download data. They import it into spreadsheets. With palsied, academic excitement they run scripts and type equations. When it is all over they have -- ah, glorious day! -- truth. Here is a published paper, here is a Ph.D., here is tenure! To think that they should live to see such wonders.
Here is the point of this article. The clipboard priests can treat the students' decisions as real behavior because it is real. But to create it they must build a (1) controlled environment with (2) exhaustively-known parameters to measure (3) low-stake financial calculations.
Humans are not native to controlled environments. To be sure we live in a world where non-linear effects attenuate with time & distance but on the human scale it is not what economics calls controlled.
Humans are likewise unused to exhaustively-known parameters. We start life knowing nothing and struggle mightily to learn enough to get by. The sum knowledge of our entire race is a fraction of the whole, and we do not even know the ratio of that fraction. We cannot know the ratio of that fraction. Even if we knew all, would we know that we knew all? Humans are exquisitely adapted to surviving in environments of low, faulty information.
Low-state financial decisions are far on the periphery of human significance. It is true that much of our time is devoted to obtaining defined amounts of money at reliable intervals but that is not the human experience. At best it only sustains the human experience. The things that really matter to us are transient, non-linear, and enduring. The things that make our hearts pound, the things that make us cry to God, the things that drive us to earn that money, these are unsuited for inquiry by any branch of academia save the philosophy department, a department not famous for its economic achievements.
We may conceptualize our actions as discrete, atomic, and limited. The effects are not. Everything accrues. Society is a network of relationships. These relationships may be said to remember everything you have been seen to do. Every little action you take contributes to your future, and beyond you, your children's futures. However we may delude ourselves with the petty academic frame which insists on treating events as isolated and discrete we humans have a heuristic understanding that our decisions are not based on isolated, contained processes but that we are unfolding a single ongoing process in a fantastic world that we do not truly understand.
The academy can call our heuristics irrational or suboptimal all they like but that is their problem. Let the smrt people make the Isolated Decision Fallacy. We know better.
And yeah, I made up this fallacy.
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