Exactly what is Sunk Cost? Years ago, I used to teach Decision Theory and MicroEconomics and the concept of Sunk Cost was an important concept. It was a concept that is difficult to convince students of. It is a simple concept, but that does not make it easy to understand. Here goes.
I am going to use an example to demonstrate the point. Let's say that you purchased a lot in a new subdivision to build a new house for $50,000 and had put $10,000 down on the lot and had, so far, paid 10 payments of $500 each. You now owe $35,000 toward your lot. The bank loan has a mortgage on the lot with the lot as their security. Your wife comes home and tells you that she just saw a lot in the same subdivision that was equal to your lot for sale for $25,000. What do you do?
You discuss the situation with your wife and she says that you should forfeit your first lot and let the bank take it. You should then buy the other lot and save $10,000. You say, "What are you thinking? If we did that, we would lose the $15,000 that we have already paid." Who is right? What would you do? This is an example of sunk cost. The $15,000 that you have paid toward the lot is "sunk" or lost and you will never be able to get it back. You decision has to be based on the "future", not on the "past". This is a simple example, but the concept applies to very many situations. The wife is right!
Now look at Obama and Iraq. In this case, we have a lot of sunk cost that we can never get back. Any decision has to be based on the future, not on the past. The past only provides information to aid us in our future decision. If the objective of the original effort in Iraq was to build a stable country, well, that did not happen. If it was to prevent Iraq from attacking us or any other country, it did do that. If it prevented Iraq from developing weapons that would destabilize the area, it did that too.
Now, we have to look at the future, not at the past, except to learn some thing. First, we need to look at the future alternatives. And see what the out come would be from each of those alternatives. There are an unlimited number of alternatives so we need to consider the most probable. If we do nothing, the terrorists will gain a base for further operations and financial strength to fund their efforts. If we send in our military, we will either destroy the terrorists or weaken them and make it less likely that they will cause serious problems in the USA. With these alternatives, what should Obama do?
Obama is blinded by the concept of sunk cost. Part of the reason that Obama is blinded by sunk cost is that the average American is also blinded. They are like the husband above who wants to keep paying on his original lot. When you are making your decision on what to do, you have to be aware that you may be biased by the sunk cost concept. It is not easy to maintain clear objectivity in the area of sunk cost.
