Monday, August 2, 2010

Politicians and sunk cost behaviour

Acting on the basis of sunk cost is irrational. Behaviour based on sunk cost is like crying over spilt milk. Decisions based on sunk cost lead to faulty or suboptimal outcomes. Yet human beings are not free of such bahaviour. Politicians are the more visible category of people who are prey to such behaviour.
Take for instance a prominent politician's recent outburst against the common wealth games. He poured scorn over the governments efforts to host the commonwealth games and hoped the same would be a failure.He is of the opinion that the money could have been spent in a better manner. He could be right in questioning the primacy of games expenditure over other priorities such as poverty alleviation etc. Economic planning is all about allocating resources in a manner in which welfare is maximised.Hopefully spending on the games figures in this optimal allocation.
But now that we have ventured into these games and are at an advanced stage of completion his hopes for a failure seems to be a classic sunk cost behaviour. Hoping for a failure based on an unrecoverable cost is like hoping for the worse. The benefits of successfully hosting the games may be few or many but are certainly positive. But the consequences of a failure are certainly negative.

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