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Monday, November 17, 2008

The Sunk Costs Fallacy

When making the decision whether to pursue something or not, expenses already spent should be ignored. If you've already invested a lot of time and money in something, you are reluctant to abandon it, even if that's the strategically correct decision.

The sunk costs fallacy is a very common problem. I consider this to be an aspect of pro-State brainwashing.

For example, I was studying for a PhD in Mathematics. After 3 years, I decided to abandon it and pursue a career as a software engineer. It would have taken me another 2-3 years to finish my PhD. At that point, I had already completed some decent research; it was merely a matter of putting in the time to get a degree. By the sunk costs fallacy, I would say "I already invested 3 years. I should finish so that investment isn't wasted." Correct reasoning is "Those 3 years are already gone. At this point, is a PhD worth 2-3 more years?" I concluded "no", and left for a job as a software engineer. (Some other grad students pointed out that they did not have a Computer Science background, and lacked the option to switch like I did.)

Suppose you have been dating a woman for 2 years, and it turns out she is abusive or not right for you. By the sunk costs fallacy, you should keep trying to make the relationship work. The correct strategy is to break up with her and find someone else.

Suppose you have been spending a year working on starting a business, but it isn't showing any profits. Do you keep trying? Or, do you say "This isn't working. I'm going to try something else." The fact that you already spent a year should not be a factor in your calculation.

Suppose you have been working for several years as a newspaper journalist. Do to pressure from the Internet, newspapers are cutting back and you can't get a job as an online journalist. Do you keep trying? Or, do you say "It's time for a career change."? Due to the sunk costs fallacy, people are reluctant to switch careers.

The time invested in my career as a slave software engineer might be a sunk cost. A software engineer doesn't have much opportunity for career advancement, even if you're really talented. It might be correct for me to abandon my career as a financial systems programmer or LAMP/web programmer and work as an agorist. I'll probably experiment with part-time agorism initially, until it's a good source of income.

The biggest example of the sunk costs fallacy is the State. You might say "The current economic and political system has been polished for over 200 years. A lot of people have invested a lot of time and money in the current system. We should try to make it work." The correct conclusion is "It's time to scrap this and try something else."

The sunk costs fallacy is not a natural human behavior. It is an aspect of pro-State brainwashing. The sunk costs fallacy prevents people from realizing "The current economic and political system is a proven failure. It's time to try something else."

1 comment:

Anonymous said...

You are finding the truth and realizing that it is painful. Poker players that are "pot-committed" continue to raise the stakes when they realize they are holding a losing hand. The Elitists controlling the State have adopted similar attitudes: WE DON'T CARE HOW MUCH WE OWE. WHAT WE NEED TO KNOW IS HOW MUCH MORE CAN WE OWE. Starting over is for revolutionaries who correctly perceive that it isn't working.

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