Is Sunk Cost Fallacy a Fallacy?

There are interesting examples of this in Go, where pro play commentary often discusses tensions between "cutting your losses" and "being strategically consistent".

If things in Go aren't as clear-cut as the classic utilitarian example of "teleporting into the present situation" (which is typically the way Go programs are written, and they nevertheless lose to top human players), then maybe we can expect that they aren't clear-cut in complex life situations either.

This doesn't detract from the value of teaching people the sunk-cost fallacy: novice Go players do things such as adding stones to an already dead group which are clearly identifiable as instances of the sunk cost fallacy, and improvement reliably follows from helping them identify this as thinking that leads to lost games. Similarly, improvement at life reliably results from improving your ability to tell it's time to cut your losses.

Two remarks :

1. Be careful with the Concorde example. As a French citizen, I was told that the goal of the Concorde never was to be profitable as a passenger service, but it served two goals : public relation/advertising to demonstrate the world the technical ability of french engineering and therefore sell french-made technology (civilian and military planes for example, but also through halo effect, trains or cars or nuclear power plants), and stimulating research and development that could then lead to other benefits (a bit like military research or space program does lead to civilian technology later on). Maybe it was just rationalization and not admitting they felt to the sunk cost fallacy, but as long as I remember, that was the official stance on the Concorde - and on that side, I don't really think it was sunk cost.

2. I agree with your analysis that sunk cost is useful to counter other biases. I didn't think about the part of young children not committing it, but now that you pointed to studies showing it, it makes perfect sense (and is compatible with my own personal observation of young relatives). So, yes, sunk cost fallacy is useful because it helps us lower the damages done by the planning fallacy and our tendency to be too optimist. But I wouldn't go as far as saying it's not a bias. It's a bias, a "perfect rationalist" shouldn't have it. A bug that partially negates the effects of another bug, but sometimes create problems of its own, is still a bug. So I wouldn't say "sunk cost is not a fallacy" but "sunk cost is a fallacy but it does help us overcome other fallacies, so be careful".

Is Sunk Cost Fallacy a Fallacy?

Yes, it is. Roughly speaking it is when you reason that you should persist in following a choice of actions that doesn't give the best expected payoff because you (mistakenly) treat already spent resources as if they are a future cost of abandoning the path. If your essay is about "Is the sunk cost fallacy a problem in humans?" then the answer is not so trivial.

It is not clever or deep to title things as though you are overturning a basic principle when you are not. As far as I am concerned a (connotatively) false title - and the implicit conclusion conveyed thereby - significantly undermines any potential benefit the details of the essay may provide. I strongly suggest renaming it.

Wait a second:

Arkes & Ayton cite 2 studies finding that committing sunk cost bias increases with age - as in, children do not commit it.

Information is worth most to those who have the least: as we previously saw, the young commit sunk cost more than the old

These are in direct contradiction with each other. What gives?

when one engages in spring-cleaning, one may wind up throwing or giving away a great many things which one has owned for months or years but had not disposed of before; is this an instance of sunk cost where you over-valued them simply because you had held onto them for X months, or is this an instance of you simply never before devoting a few seconds to pondering whether you genuinely liked that checkered scarf?

If (during spring cleaning) you balk at throwing away something simply because it's sat so long in your basement, you are tempted to justify holding on to it a little bit more, then that's an instance of SCF.

If you balk at even doing spring cleaning (as I personally know some of my friends do) because the outcome is going to be reconsideration of your ownership of some items that you don't really value, but that you have "invested" in by keeping them in storage - then that is again an instance of SCF.

Spring cleaning itself, when it involves throwing things away, is an instance of cutting your losses. Storing items in anticipation of future use is not SCF (though it may be an instance of fooling yourself). Ergo, that you allow months or years to pass between storing items and spring cleaning is not per se an instance of SCF, even though past use of your storage space does represent a sunk cost.

ETA: on the other hand, balking at throwing something away because of emotional attachment does not necessarily qualify as SCF. For instance, throwing away kid toys that you know your now-grown kids are never going to use again, and that putative grandchildren are unlikely to use, but you would like to retain the option of using these items later to bring back happy memories.

A few brief comments:

The study in footnote 6 seems to show the opposite of what you say about it. The study found that diffusion of responsibility reduced the effect of sunk costs while you say "responsibility is diffused, which encourages sunk cost."

In the "subtleties" section, it's unclear what is meant by saying that "trying to still prove themselves right" is "an understandable and rational choice." After someone has made a decision and it is either right or wrong, it does not seem rational to try to prove it right (unless you just mean that it can be instrumentally rational to try to persuade others that you made the right decision).

The study quoted in fn 26 doesn't seem to match your description of it ("sunk costs were supported more when subjects were given justifications about learning to make better decisions"). The studies did not vary whether or not participants were given the learn-a-lesson justification. All participants were given that justification, and the DV was how highly they rated it.

There are few places where you downplay evidence of sunk cost effects by saying that the effects were small, but it's not clear what standard you're using for whether an effect is large or small. If an NBA player plays an extra 10-20 minutes per game based on sunk cost thinking that seems to me like an enormous effect (superstars only play about 25 minutes per game more than backups).

Good point. My interpretation of what you're saying is that the error is actually failure to re-plan at all, not bad math while re-planning.

About the “Learning” section:

I think I understand the basic argument here: sometimes an escalation of commitment can be rational as a way to learn more from a project by continuing it for longer. But it seems like this only applies to some cases of sunk cost thinking and not others. Take Thaler's example: I don't see why a desire to learn would motivate someone to go to a football game in a blizzard (or, more specifically, how you'd learn more if you had paid for your ticket than if you hadn't).

And in some cases it seems like an escalation of commitment can hinder learning. Learning from a failed project often requires admitting that you made a mistake. One of the motivations for continuing a failing project is to avoid admitting you made a mistake (I believe that's called the “self-justification” explanation of the sunk cost fallacy). If you finish the project you can pretend that there was no mistake, but if you stop it prematurely you have to admit your error which can allow you to learn more. For example, if you throw out food from your plate then it's clear that you cooked too much (learning!), but if you eat everything on your plate to avoid wasting it then the error's less clear.

At the end of that section there's a list findings that “snap into focus” if escalation of commitment is for learning, but with many of them I don't see a clear connection to the learning hypothesis. For instance, “in situations where participants can learn and update, we should expect sunk cost to be attenuated or disappear” seems consistent with many different theories of sunk costs, including the theory that it's a bias which people can learn to avoid as they gain more experience with a type of decision. Is there something specific about the cited studies that points to the hypothesis that escalation of commitment is for learning?

I had serious trouble understanding the paragraph "COUNTERING HYPERBOLIC DISCOUNTING?" beyond "sunk costs probably counter other biases".

Also, I'd like to point out that, if sunk costs are indeed a significant problem in large organizations, they are indeed a significant problem; large organizations are (unfortunately?) rather important to modern life.

Content aside, you should generally avoid the first person as well as qualifiers and you should definitely avoid both, e.g. "I think it is interesting." Where some qualifiers are appropriate, you often phrase them too informally, e.g. "perhaps it is more like," would read much better as, "It is possible that," or, "a possible explanation is." Some first person pronouns are acceptable, but they should really only be used when the only alternative is an awkward or passive sentence.

The beginning paragraph of each subsection should give the reader a clear idea of the ultimate point of that subsection, and you would do well to include a roadmap of everything you plan to cover at the beginning.

I don't know if this is the feedback you're searching for or if the writing style is purposeful, just my two cents.

I prefer the way the Beeminder cofounder explains this on this page of his blog.

I'm impressed with the thoroughness that went into this review, and with its objectivity and lack of premature commitment to an answer.

I would like to argue that it is less important to determine IF it is a fallacy, than what kind it is.

One view is that this is a "deliberation" fallacy, along the lines of a failed thought experiment; e.g. 'something went wrong because conditions weren't met.' Another view is that this fallacy, which relates if I am correct to "resource shortages" or "debt crises" is in fact a more serious 'systems error' such as a method fallacy involving recursivity or logic gates.

To some extent at this point I am prone to take the view that the extent of the problem is proportionistic, leading to a kind of quantitative rather than qualitative perspective, which makes me think in my own reasoning that it is not true logic, and therefore not a true logical problem.

For example, it can be argued modal-realistically that in some contingent or arbitrarily divergent context or world, debt might be a functional or conducive phenomenon that is incorporated in a functional framework.

I would be interested to know if this kind of reasoning is or is not actually helpful in determining about a debt crisis. Perhaps as might be expected, the solution lies in some kind of "technologism," and not a traditional philosophical debate per se.

Related: sunk cost fallacy fallacy

Well, I always thought it was obvious that "sunk cost" has one advantage going for it.

Placing a single incident of a "sunk cost" in a larger context, "sunk costs" can serve as a deterrent against abandoning projects. I wonder if the virtue of persistence isn't maligned. After all, as limited rationality machines, 1) we hardly ever can look at the full space of possible alternatives, and 2) probably underestimate the virtue of persistence. Pretty much every success story I've ever read is of someone who persisted beyond what you might call "the frustration barrier".

As I think about the error in forecasting expected payoff, it seems to me that unless we have a lot of experience with pushing projects through to the end, we're likely to underestimate the value of persistence, due to compounding effects and comparative advantage (if few people gain some skill).

I came up with example of how sunk cost fallacy could helps increase the income for 2 competing agents.

Consider two corporations that each sunk considerable sum of money into two interchangeable competing IP-heavy products. Digital cameras for example. They need to recover that cost, which they would be unable to if they start price-cutting each other while ignoring the sunk costs. If they both act as not to price cut beyond the point where the sunk costs are not recovered, they settle at a price that permits to recover the software development costs. If they ignore sunk costs they can price cut to point where they don't recover development expenses. Effectively the fallacy results in a price-fixing behaviour.

Note: on the second thought, the digital cameras, being a luxury item, may be a poor choice for that example. Corporate goods, such as e.g. network hardware, may be a better choice. The luxury goods keep selling ok even if someone is price cutting you, as the luxuries attain some of the value from the price itself;

Is the sunk cost fallacy a fallacy?

I ask myself about many statements: would this have the same meaning if the word "really" were inserted? As far as my imagination can project, any sentence that can have "really" inserted into it without changing the sentence's meaning is at least somewhat a wrong question, one based on an unnatural category or an argument by definition.

If a tree falls in the forest, does it make a sound? --> If a tree falls in the forest, does it really make a sound?

Is Terry Schiavo alive? --> Is Terry Schiavo really alive?

Is the sunk cost fallacy a fallacy? --> Is the sunk cost fallacy really a fallacy?