The ‘sunk-cost fallacy’

BARRY SCHWARTZ is a professor of psychology at Swarthmore College and the author of "The Paradox of Choice: Why More Is Less."

YOU’VE PAID $10 to get into the movie and it just plain stinks. The plot is ridiculous, the acting is terrible, the violence is excessive. But you’ve already watched half of it. Do you sit through the movie to the end or do you leave?

Just a month ago, you spent $2,000 getting your 10-year-old car’s transmission rebuilt. Now you find out the car is leaking oil and needs a ring job. Do you spend the next thousand or buy a new car?

You’ve been living with your romantic partner for 10 years. The relationship has had its ups and downs, and both of you have invested a lot in keeping it going. But every day it seems to involve more work and less joy. Is it time to move on?


You work for a private equity firm and personally persuaded your skeptical partners to invest $2 million in a high-tech start-up. Now the chief executive comes to see you with the news that they’ve hit some snags in developing their product, and they’ll need at least another million to bring it to market. Do you write the check?

We’ve all encountered situations like these. We make a significant investment -- of money, time or emotion -- in some project, relationship or business deal, and it doesn’t seem to be working out. Do we continue to “throw good money after bad” or do we “cut and run” and “stop wasting time”? What’s the right way to think about such decisions?

Psychologists, decision scientists and economists have an answer. They tell us that it’s a mistake to continue with a project or an activity because of what you have already invested in it. The time or money you’ve already spent is gone. You can’t reclaim it. Using a past investment to justify a future investment is what they call the “sunk-cost fallacy.”

Instead of thinking about the past, what we should be doing is thinking about the future. “Will my life be better if I leave this terrible movie or if I stay to the bitter end?” “Will my car give me 20,000 more trouble-free miles if I just do this one last repair?” None of these questions have sure answers. Life is full of uncertainty. But what we can say is that if the reason for “staying the course” is past commitment -- sunk costs -- we need to find a better one.

“Cut and run.” “Stay the course.” Where have we heard these phrases lately? Oh, yes, we’ve heard them trotted out in defense of continued U.S. involvement in Iraq as death, injury and insurgency mount. President Bush has offered several reasons for staying the course. And one of them is the more than 2,600 Americans who have already died in Iraq.

“I’m going to make you this promise,” the president said at Ft. Bragg, N.C., on July 4. “I’m not going to allow the sacrifice of 2,527 troops who have died in Iraq to be in vain by pulling out before the job is done.” And Bush has not cornered the market on this kind of reasoning. Bill Clinton said it too, more than a year ago. Asked about Iraq, he said that “we’ve all got a stake in its succeeding.” Why? “We’ve got over 600 dead Americans since the conflict was ended.”


We heard this argument often enough in the 1960s. As casualties mounted in Vietnam, it became more difficult to withdraw because withdrawal would have “cheapened” the lives of those already sacrificed. We “owed” it to the dead and wounded to “stay the course.” What staying the course produced was thousands more dead and wounded. “Knee deep in the big muddy” is how folk singer Pete Seeger described it. The question should never have been, “What have we invested so far?” but “What are our objectives for the future and can we attain them at a reasonable cost?”

The sunk-cost fallacy took many lives in Vietnam. Whether Iraq is or is not another quagmire I leave to others, and to history, to determine. But there is one respect in which we must not allow Iraq to become another Vietnam: Continued involvement must not be justified by appealing to the imperative not to allow the dead to have “died in vain.”

HOW SHOULD WE honor the sacrifices of those who have died or suffered serious injury in a U.S. military conflict? The best way to show how much we respect and value their lives is by not risking other lives unless future prospects for success fully justify putting more people in harm’s way. Therefore, our standards for putting more people at risk should, if anything, become more rigorous, not less, as casualties mount.

To change course under such circumstances need not be an admission of foolishness -- even if enemies do accuse the decision-maker of “flip-flopping.” One can think through a problem in a logical and rigorous way, and formulate a sensible course of action, only to discover that it doesn’t work out. Good decisions do not guarantee good results (just as bad decisions don’t guarantee bad ones).

Yet people seem willing to waste even more (time, money or lives) to justify what they have already spent and avoid that sick feeling of failure. Think about it. You haven’t really lost money on a stock whose share price keeps plummeting until after you sell it. So you keep holding on, in the hope that your judgment as an investor will eventually be vindicated. And troops haven’t really “died in vain” as long as you continue to press on in the fight, no matter how disastrous the results.

I am not arguing that we should “declare victory and leave” Iraq. Nor am I suggesting that the only justification being offered for continued U.S. involvement in Iraq is the “sunk cost” in American lives. I am not saying that obligations from the past should never enter into one’s consideration about the future. And I certainly don’t propose that we should think about death and injury, war and peace in exactly the same way we think about car transmissions and investments in start-ups.

My suggestion here is more modest. You may attempt to justify the continued Iraq occupation in many ways, as the Bush administration has. Perhaps you think it will prevent further terror, democratize the Middle East or restrain Iran. Perhaps you think that leaving Iraq before “the job is done” will undermine the world’s confidence in U.S. promises to other nations.


But it is unacceptable to justify continued involvement in Iraq or any other conflict on the grounds that we “owe” it to those who have already fallen. That is a justification that has strong emotional appeal, but it is fallacious, and no one should be allowed to get away with it.

Whatever the differences between Iraq in 2006 and Vietnam in 1968, if we allow policymakers to use our “sunk costs” -- our dead military -- to justify further conflict, we will have turned Iraq into another Vietnam. And if we do, we will be shamed by Iraq just as we were shamed by Vietnam.