House Republicans are victims of 'sunk cost fallacy'

defund.jpgYou might have run across this concept in your economic classes and it can relate to businesses as well as political parties. A sunk cost is something that can never be recovered, try as you might. A company that spends $1 million to research a new product will not be reimbursed even if it's determined that the product won't work. Sunk costs are part of everyday life, whether it's investing two hours in a lousy movie or losing time after time at the craps table. As the Washington Post's Neil Irwin explains, the sunk cost fallacy happens when people double down on past mistakes. They have invested so much that the idea of cutting their losses is unacceptable. A bad hire is an example. So is a failed relationship - as well as a bad political strategy. From Irwin:

In their resistance to making a deal to reopen the government and raise the debt ceiling, House Republicans risk making the same mistake (one that would be a great deal less costly than World War I, but quite a bit more costly than watching all of a lousy TV series). House Republicans pushed a hard line in the runup to the government shutdown, demanding a repeal of Obamacare in exchange for agreeing to fund the government. There was never any way that the White House or Senate Democrats would go along with that, but that was their strategy, and it led to the shutdown of the government. Two weeks later, Republicans have started to accept that they will not get a full repeal of the health reform legislation, and are trying to work on more attainable goals. But there is a strong current within their caucus that sees the fact that they have shut down the government and attendant decline in popularity as a reason that they must continue to fight.

The sunk cost fallacy is sometimes referred to as the "Concorde Fallacy," which was the decision by the British and French governments to keep developing the supersonic aircraft long after it became clear that the financial viability of the plane could never pencil out. We also know it as throwing good money after bad. That what the House Republicans are now doing.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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