Friday, January 18, 2013


James Surowiecki has an entertaining piece on sunk costs in this week's New Yorker.  The plain truth that bygones are bygones is often a challenge to teach because, while most people easily get it, there is also the nagging feeling (hope) that bygones are not bygones and perhaps there is a way to redeem past mistakes.

Pick the wrong mate or career path -- and people unable to face facts will often indulge in talk of "I have invested so much in this _______ (person, major, etc.) that I cannot simply walk away now."

But other people do sell their bad investments and business do shut down product lines and more.  Cutting losses is no fun, but better than the alternatives.

Throwing good money after bad is more easily done in the case of government programs because it is other people's money that is at stake.  There are quite a few programs that are total busts (long list here) but that are kept alive (even in the age of trillion dollar federal deficits, unfunded pension liabilities and the like) because with other people's money the rationalizations come easy.  Among the rationalizations is the idea that with so much invested, we cannot simply just walk away.  We have to keep digging and make a deeper whole.