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)