Sunk Costs

I had thought that the idea that the sunk costs fallacy is really a fallcy was as close a thing as there was to a consensus amongst philosophers. But now I see that “Tom Kelly”:http://www.nd.edu/~tkelly6/projects.html has a paper forthcoming (in __No{u^}s__) saying that “honouring sunk costs can be rational”:http://www.nd.edu/~tkelly6/NousSunk.htm. Like a few other people in the New England area, whenever I think of the sunk costs fallacy I think of the Red Sox continuing to play “Tony Clark”:http://www.baseball-reference.com/c/clarkto02.shtml long after he showed he wouldn’t justify his $5,000,000 salary, so I’m not exactly positively disposed to the fallacy. But Tom’s paper makes several interesting points, even if it doesn’t do anything to redeem the Sox management __circa__ 2002.

Strictly speaking, Tom isn’t as much concerned to defend the rationality of honouring sunk costs as the possible rationality of actions that are usually so described. He quibbles a bit in various places throughout the paper about whether there are as many clear experimental cases of the sunk costs fallacy, but let’s assume for now these are instances of the fallacy.

The main idea (roughly stated) is that since the value of an action is partially determined by what happens in the future (just like “the value of an organism”:http://www.nyu.edu/gsas/dept/philo/faculty/harman/papers/Potentiality.pdf) our current actions can be sometimes justified by the redemptive value they confer on past actions. It’s an interesting idea, though I’m not sure how much it should matter in practice. For one thing, I think we need a more comprehensive theory than Tom offers here about which past actions are worth honouring. (I imagine Tom has such a theory but space constraints kept it out of the _No{u^}s_ paper.) It clearly isn’t worth redeeming an off-season waiver claim by running Tony Clark out there every day when it’s really unlikely he’ll hit the ball out of the infield, let alone out of the park. Tom often refers to the kind of actions that are worthy of redemption as ‘sacrifices’, and I wonder if there’s more to be said about what makes those actions redemption worthy.

Tom also notes that honouring sunk costs, or at least being perceived to do so, can have game-theoretic advantages in certain situations. I’m less impressed by this as an argument for the rationality of such actions. (And Tom doesn’t lean on it particularly.) In some games of Chicken, the best thing to do is to unbolt the steering wheel and throw it out the window. The situations where it is best to honour sunk costs remind me of those games of Chicken. When it works, it’s a neat stunt, but it doesn’t take much for circumstances to change and then it becomes a really really _bad_ strategy.

Obviously there’s a lot more to the paper than I can indicate in a blog post, so if you’re interested in these topics, er, “read the whole thing”:http://www.nd.edu/~tkelly6/NousSunk.htm.