For sunk costs, you are supposed to consider your all options including the sunk cost project.
For your example your options might look like:
* Stick with industry, 0 year lead time, no cost, possible sadness, low risk
* Slight change, 2 year lead time, $20,000, moderate happiness, medium risk
* Vast change, 10 year lead time, $100,000, unknown happiness, high risk
The fallacy would be giving the first option some sort of financial value because you spend time and money on it in the past. You are just supposed to look at your options looking forward only.
You are just supposed to look at your options looking forward only.
In most realistic scenarios your estimations of the payoff matrix has a significant uncertainty. It isn't just that there is risk, but your estimation of the risk is uncertain as well (as well as your estimation of your estimation, and so on).
When reasoning under uncertainty we can usually achieve significant benefits from regularizing the decision.
"Do what everyone else is doing", "Keep doing what I was already doing", and "Do what is most consistent with my past investments" are time tested highly effective regularizers. When we are trying to rationalize taking actions that defy billions of years of evolved heuristics for reasoning under uncertainty we call the first 'bandwagon fallacy', the second 'status quo bias', and the third 'sunk cost fallacy'.
There is often a fine line between rational decision making and rationalization. Awareness of the ways that people sometimes make errors in their decisions can be useful, but one should take care to avoid using a little bit of knowledge to come up with specious justifications for poor choices.
Much of the time I see the word 'fallacy' used it sure seems to be sophistry. When a reasoned position is better you can just state why its better outright and the justification will stand up on its own merit without any invocation of a named fallacy.
Maybe calling it sunk cost heuristic would be better? Acknowledging that most of the time it does work, and then explaining why in this particular situation it does not?
The fallacy would be giving the first option some sort of financial value because you spend time and money on it in the past.
But when we have sunk costs, we really have a past investment that we have an unknown return upon-- and we're deciding whether to abandon that investment.
If we've made a substantial investment, it can make sense to have a bias towards avoiding actions that definitely invalidate that investment-- a bias towards inaction.
It's rare that a position presents itself where it is completely clear what the future value of different tracks is worth so clearly.
Comments
For sunk costs, you are supposed to consider your all options including the sunk cost project.
For your example your options might look like:
* Stick with industry, 0 year lead time, no cost, possible sadness, low risk
* Slight change, 2 year lead time, $20,000, moderate happiness, medium risk
* Vast change, 10 year lead time, $100,000, unknown happiness, high risk
The fallacy would be giving the first option some sort of financial value because you spend time and money on it in the past. You are just supposed to look at your options looking forward only.
In most realistic scenarios your estimations of the payoff matrix has a significant uncertainty. It isn't just that there is risk, but your estimation of the risk is uncertain as well (as well as your estimation of your estimation, and so on).
When reasoning under uncertainty we can usually achieve significant benefits from regularizing the decision.
"Do what everyone else is doing", "Keep doing what I was already doing", and "Do what is most consistent with my past investments" are time tested highly effective regularizers. When we are trying to rationalize taking actions that defy billions of years of evolved heuristics for reasoning under uncertainty we call the first 'bandwagon fallacy', the second 'status quo bias', and the third 'sunk cost fallacy'.
There is often a fine line between rational decision making and rationalization. Awareness of the ways that people sometimes make errors in their decisions can be useful, but one should take care to avoid using a little bit of knowledge to come up with specious justifications for poor choices.
Much of the time I see the word 'fallacy' used it sure seems to be sophistry. When a reasoned position is better you can just state why its better outright and the justification will stand up on its own merit without any invocation of a named fallacy.
Maybe calling it sunk cost heuristic would be better? Acknowledging that most of the time it does work, and then explaining why in this particular situation it does not?
Man I cannot agree at all. I've personally seen some majorly bad decisions made on the backs of those fallacies.
I've seen some people get killed after leaving their homes. Better stay inside all the time.
You can't make bias go away just by speaking its name.
And I've see it work out brilliantly
But when we have sunk costs, we really have a past investment that we have an unknown return upon-- and we're deciding whether to abandon that investment.
If we've made a substantial investment, it can make sense to have a bias towards avoiding actions that definitely invalidate that investment-- a bias towards inaction.
It's rare that a position presents itself where it is completely clear what the future value of different tracks is worth so clearly.