Werther Report: The Sunk Cost Fallacy

Why Sir Douglas "Stayed the Course" for 5 Months After after Losing
60,000 Men on 1st Day of the Battle of the Somme

April 22, 2004

Comment: # 509

Discussion Threads - Previous Werther Reports can be found in Comment#s: 507, 504, 492, 466, 458, 453, 441, 421, 419

[Administrative note: this will be the last Blaster for a few months, because I will at sea with little email communications capability]

The Battle of the Somme began on July 1, 1916, with the British commander receiving a hefty dose of negative feedback — 60,000 casualties on the first day of combat, including over 19,000 killed, with only tiny gains to show for the spilt blood.

Nevertheless, Sir Douglas Haig, chose to stay the course of the planned offensive, at least until it petered out almost five months later on November 13. And after it was all over, there was no a decisive breakthrough, notwithstanding the eventual loss of 420,000 British soldiers, and not to mention 195,000 French soldiers and perhaps as many as 650,000 German soldiers. World War I remained a strategic stalemate until the summer of 1918.

Why did Sir Douglas Haig — unlike U. S. Grant at Cold Harbor — choose to reinforce failure when faced with such unabashed negative feedback?

In these grim days of false war promises [see for e.g., #s 408 and 489], dumbed-down OODA Loops, reckless Texas-sized gambles, and growing grand-strategic isolation [see for e.g., #s 400, 465, 469, 496, and 491], Sir Douglas's obtuseness in the face of mounting evidence to the contrary is a question for our times.

With a sense of deep foreboding, I asked my good friend Werther, a neo-Helgelian genius with a touch of madness and Mencken, for his take on the human predilection to persevere in the face of unambiguous evidence to the contrary.

What follows is his response; perhaps Sir Douglas is looking down on us with ironic amusement.

The Sunk Cost Fallacy

by Werther*
April 22, 2004

*Werther is the pen name of a defense analyst who lives in Northern Virginia

Las Vegas has become the fastest-growing major city in the United States because it exploits the sunk cost fallacy. Not being fools, casino managers fix the odds in favor of the house, which means that on average, gamblers consistently lose to the house. And they keep on losing.

Some atavistic trait in human psychology causes human beings to value a past investment of money, effort or some intangible quality (e.g., "credibility" or "face") independent of the investment's probability of paying future dividends. At its most primitive, the trait makes us reluctant to leave the interminable line at the DMV: the more time we've "invested," the less likely we are to leave, regardless of how much longer we still have to wait and regardless of whether we could spend that time more profitably and come back another day. It is stubbornness; it is also the sunk cost phenomenon at work.

When the F-22 began development in 1986, the Air Force projected a unit cost of $86 million. Eighteen years later, the unit cost is almost $300 million, and the plane is not yet in service. The U.S. taxpayer has "invested" some $41 billion to date and still not received any discernible dividend after nearly two decades. Meanwhile, the objective conditions influencing the probability of the investment paying dividends has changed radically.

First (although this may be news to the Pentagon and congressional defense committees) the Berlin Wall fell. The F-22 became another extravagant relic of a certain stage of industrial warfare, like railway artillery and the dreadnought. Second, the bombing of the World Trade Center in 1993 ought to have demonstrated the misplaced priority of shoveling tens of billions of dollars into cold war bric-a-brac like the F-22, the Seawolf submarine, and BMD [editor's note: ballistic missile defense - "Star Wars"]. Washington's Iron Triangle had 8 years to prepare for 9/11; what fraction of the F-22's $41 billion could have bought improved intelligence collection on al Qaeda, more Arabic language translators, or improved border protection and immigration control?

In 1999, a defense committee did the unthinkable: it briefly denied production fund for the F-22 on the rationale that it was starving other needs. Predictably, Air Force officials disputed the committee's portrayal of the fighter's unit cost - at that point already $187 million. "They pointed out that USAF already has expended more than $20 billion, a third of total program funds, developing the fighter. By factoring out that sunk cost, one arrived at a far lower "to go" sticker price - $85 million per airplane." (1)

Equally predictable was the outcome: the Air Force prevailed. In so doing, it explicitly invoked the sunk cost argument, which was doubly fallacious because not only was it unrelated to potential dividends in a changed strategic environment, but it lowballed future development and production costs, thereby making the argument even more skewed. (2)

As a glance the newspaper will reveal, politicians are now trying out new rationales to anesthetize public unease about the rising tab at the Great Mesopotamian Casino. The old bromides about WMD, a self-financing occupation, peace between Israel and Palestine, and the grateful acclaim of the liberated now elicit at best a polite cough behind the hand.

Fortunately for our governing class, the sunk cost argument lies ready: "We've come this far; there's no turning back." Taxpayers have committed $121 billion and military families a much heavier cost, but the U.S. government has not accomplished a single major prewar objective save deposing the senile Saddam Hussein. Nevertheless, marvelous benefits will accrue (no less than Changing the World) if we "stay the course" and don't "cut and run" - ominous slogans from Vietnam, another classic example of sunk cost rationales. Even more ominous, the president's 13 April press conference contains this: "As I have said to those who have lost loved ones, we will finish the work of the fallen." There, in embryo, is sunk cost - not in money, but in precious lives.

And just where is the Loyal Opposition on this weighty issue? Showing his penchant for cutting-edge thinking, the Democratic presidential challenger has issued this breathtaking proposal: add more troops and delay the handover of Iraq to its ostensible owners. Like Bill Bennett in Vegas, his gambling strategy is to up the ante.

Now just where on earth do cynics get the idea that Democrats and Republicans are two heads of the same hydra?

(1) "Battle of the F-22, " Air Force Magazine, September 1999.

(2) Tactical Aircraft: Changing Conditions Drive Need for New F/A-22 Business Case (GAO-04-391) is the most recent General Accounting Office analysis of F-22 costs.

Chuck Spinney

"A popular government without popular information, or the means of acquiring it, is but a prologue to a farce or a tragedy, or perhaps both. Knowledge will forever govern ignorance, and a people who mean to be their own governors must arm themselves with the power which knowledge gives." - James Madison, from a letter to W.T. Barry, August 4, 1822

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