2008/03/21

Sunk costs and war or not war

"Sunk costs" is an economical term. Rational, effective behavior is to ignore these costs.

All effort and resources that were already spent are lost and cannot be recovered. They are plain irrelevant for good decisions. If you'd consider these sunk costs as arguments that influence your decisions, you're prone to stick to sub-optimal behavior and invest in projects that are simply not efficient.

Many people have strong misgivings about "wasting" resources. This is called "loss aversion". In the above example involving a non-refundable movie ticket, many people, for example, would feel obligated to go to the movie despite not really wanting to, because doing otherwise would be wasting the ticket price; they feel they passed the point of no return. This is sometimes called the sunk cost fallacy. Economists would label this behavior "irrational": It is inefficient because it misallocates resources by depending on information that is irrelevant to the decision being made. Colloquially, this is known as "throwing good money after bad".

This economical problem is very relevant for warfare. The most important application is at the highest level of warfare, the decision whether to continue a war or not.
A war that does not promise to be better than no war is often continued simply because many people cannot stand the idea that past losses might were a waste.

Bad news; most losses in warfare are waste, as most wars simply don't improve the overall situation in comparison to no war. Warfare is about destruction and waste, not about creation.

We are surprisingly often in a position to end a war by ourselves (which by the way equals that we are the aggressors), so this is very relevant for us.

We should be aware of the need to ignore "sunk costs" when we think about continuing a war or dropping out.

S O

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