More Sunk-Cost Thinking on Iraq War

Bruce Wydick, a professor of economics at the University of San Francisco, has written an interesting OpEd in USA Today about sunk costs and the Iraq war. Here is his lead:

Our inability to think clearly about sunk costs is impeding our ability to make clear decisions about our involvement in Iraq. Failing to correctly identify sunk costs (those that are irretrievable), and deal with them properly, biases our decision-making in favor of prolonging the war.

This is not the first time that someone has publicly connected war policy with the cognitive misstep that behavioral economists have made widely known as the sunk-cost fallacy. As noted earlier here, Barack Obama made the same point some eight months ago. Before economists came along to name this phenomenon, I believe it was known as “throwing good money after bad.” I don’t mean this as a statement on the war itself; I mean it as a way of looking at any investment or expenditure.

Speaking of old axioms that economists have dressed up in new language: I am surprised that, in response to Levitt’s post about why High School Musical 2 was so much worse than the original movie (if indeed it was so much worse; but I’d have to agree for the most part), nobody mentioned the simple possibility of regression to the mean. In other words: a hit is a hit because it was an anomaly, and the sequel is mediocre because anomalies are anomalous. This used to be known as: lightning doesn’t strike the same place twice.

[Addendum: after I wrote the above paragraph, one commenter came a little bit close to suggesting regression to the mean as an explanation: "'HSM' was lightning in a bottle; there was no chance to replicate that," wrote Susan.]

(Hat tip: Christopher Arnold)

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  1. Mars says:

    I would imagine that a sunk-cost analysis of the Iraq War would provide a better argument to stay in Iraq. Assuming Iraq War was mismanaged, leaving Iraq would not recover those sunk costs. However, if we start to properly manage the war, we might be able to prevent another middle eastern state from becoming a terrorist safe haven with little cost (compared to how much it would cost to rid terrorists of some other safe haven). The U.S. already has troops and equipment in Iraq, and I would imagine that the majority of the costs of saving Iraq from another dictatorship have already been irreversibly spent, or as economist like to say, sunk.

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  2. Mars says:

    I would imagine that a sunk-cost analysis of the Iraq War would provide a better argument to stay in Iraq. Assuming Iraq War was mismanaged, leaving Iraq would not recover those sunk costs. However, if we start to properly manage the war, we might be able to prevent another middle eastern state from becoming a terrorist safe haven with little cost (compared to how much it would cost to rid terrorists of some other safe haven). The U.S. already has troops and equipment in Iraq, and I would imagine that the majority of the costs of saving Iraq from another dictatorship have already been irreversibly spent, or as economist like to say, sunk.

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  3. Mario Ruiz says:

    Dear Stephen,

    Today I am going to play “contrarian.”

    The reason to be in Iraq is a geo-political. Therefore the economic reasons to control the Oman Gulf not only are economic, but also must be at least equivalent to the sunk cost of the war.

    The Texas economy has flourished under the reconstruction of the oil industry of Iraq. If leaving Iraq would be the same as leaving the Gulf on enemies hands, I can stop wondering how much would be the oil.

    I am not sure Bruce is one of the first thinking in the sunk cost of the war. However it seems to me he is accounting only the direct costs, not the indirect or total effect of leaving.

    This is an economical thinking does not imply US must stay or leave.

    Although my area is technology, as a CEO of company I need to know economy.

    Mario Ruiz
    @ http://www.oursheet.com

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  4. Mario Ruiz says:

    Dear Stephen,

    Today I am going to play “contrarian.”

    The reason to be in Iraq is a geo-political. Therefore the economic reasons to control the Oman Gulf not only are economic, but also must be at least equivalent to the sunk cost of the war.

    The Texas economy has flourished under the reconstruction of the oil industry of Iraq. If leaving Iraq would be the same as leaving the Gulf on enemies hands, I can stop wondering how much would be the oil.

    I am not sure Bruce is one of the first thinking in the sunk cost of the war. However it seems to me he is accounting only the direct costs, not the indirect or total effect of leaving.

    This is an economical thinking does not imply US must stay or leave.

    Although my area is technology, as a CEO of company I need to know economy.

    Mario Ruiz
    @ http://www.oursheet.com

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  5. Matt says:

    @Mars

    Please read the the post. You write:

    “I would imagine that a sunk-cost analysis of the Iraq War would provide a better argument to stay in Iraq. Assuming Iraq War was mismanaged, leaving Iraq would not recover those sunk costs.”

    The point of the post is that that kind of thinking is a fallacy. As Dubner and Wydick note, sunk costs CANNOT be recovered, that is their very nature, otherwise they would not be sunk.

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  6. Matt says:

    @Mars

    Please read the the post. You write:

    “I would imagine that a sunk-cost analysis of the Iraq War would provide a better argument to stay in Iraq. Assuming Iraq War was mismanaged, leaving Iraq would not recover those sunk costs.”

    The point of the post is that that kind of thinking is a fallacy. As Dubner and Wydick note, sunk costs CANNOT be recovered, that is their very nature, otherwise they would not be sunk.

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  7. Phil Steinmeyer says:

    I think a failure to separate sunk costs from avoidable (future) costs permeates thinking on both sides.

    On the pro-war side, there is the obvious, “don’t let the sacrifice of those who’ve already died be in vain” concept, alluded to by Dubner above.

    But on the anti-war side, I think the fallacy is even more prevalent. The thinking is, roughly, “things have gone badly so far, and going to war was a mistake, therefore, staying at war is a mistake.”

    The problem is compounded by the political spoils system at play. Endorsing war going forward is tantamount, politically, for a decision to endorse the war historically, and particularly, those who led the initial war effort (i.e. Bush, and perhaps Republicans as a whole). OTOH, Bush, like other leaders who’ve seen their policy decisions turn out badly, has been slow and reluctant to make the necessary policy changes, because doing so would be tantamount to admitting poor decisions in the first place. It seems fairly clear to me (though I am not a particularly informed observer), that Rumsfeld’s decisions had been poor, and that he should have been pushed out the door in, perhaps 2004 or early 2005. Whether you think the war was/is a mistake, so long as we are at war, we should make our best efforts with our best people. But Rumsfeld was kept on the job far too long.

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  8. Phil Steinmeyer says:

    I think a failure to separate sunk costs from avoidable (future) costs permeates thinking on both sides.

    On the pro-war side, there is the obvious, “don’t let the sacrifice of those who’ve already died be in vain” concept, alluded to by Dubner above.

    But on the anti-war side, I think the fallacy is even more prevalent. The thinking is, roughly, “things have gone badly so far, and going to war was a mistake, therefore, staying at war is a mistake.”

    The problem is compounded by the political spoils system at play. Endorsing war going forward is tantamount, politically, for a decision to endorse the war historically, and particularly, those who led the initial war effort (i.e. Bush, and perhaps Republicans as a whole). OTOH, Bush, like other leaders who’ve seen their policy decisions turn out badly, has been slow and reluctant to make the necessary policy changes, because doing so would be tantamount to admitting poor decisions in the first place. It seems fairly clear to me (though I am not a particularly informed observer), that Rumsfeld’s decisions had been poor, and that he should have been pushed out the door in, perhaps 2004 or early 2005. Whether you think the war was/is a mistake, so long as we are at war, we should make our best efforts with our best people. But Rumsfeld was kept on the job far too long.

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