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[Link] “Proxy measures, sunk costs, and Chesterton's fence”, or: the sunk cost heuristic

7 Post author: kpreid 08 August 2012 02:39PM

Thought this post might be of interest to LW: Proxy measures, sunk costs, and Chesterton's fence. To summarize: Previous costs are a proxy measure for previous estimates of value, which may have information current estimates of value do not; therefore acting according to the sunk cost fallacy is not necessarily wrong.

This is not an entirely new idea here, but I liked the writeup. Previous discussion: Sunk Costs Fallacy Fallacy; Is Sunk Cost Fallacy a Fallacy?.

Excerpt:

If your evidence may be substantially incomplete you shouldn't just ignore sunk costs — they contain valuable information about decisions you or others made in the past, perhaps after much greater thought or access to evidence than that of which you are currently capable. Even more generally, you should be loss averse — you should tend to prefer avoiding losses over acquiring seemingly equivalent gains, and you should be divestiture averse (i.e. exhibit endowment effects) — you should tend to prefer what you already have to what you might trade it for — in both cases to the extent your ability to measure the value of the two items is incomplete. Since usually in the real world, and to an even greater degree in our ancestors' evolutionary environments, our ability to measure value is and was woefully incomplete, it should come as no surprise that people often value sunk costs, are loss averse, and exhibit endowment effects — and indeed under such circumstances of incomplete value measurement it hardly constitutes "fallacy" or "bias" to do so.

Comments (5)

Comment author: OrphanWilde 08 August 2012 03:12:21PM 4 points [-]

While I agree with the post, I'm not sure that it's actually a strong defense of sunk costs as being more heuristic than fallacy; it depends upon your past self having more information than your current self. I believe the sunk cost fallacy is generally used to refer to the phenomenon where, having additional information that makes the original investment look like a bad idea, you proceed to additional investment instead of cutting loose.

That is, the sunk cost fallacy generally refers to a situation in which it is more or less explicitly stated that you have more information, rather than less. Starting from the assumption that you have less information in the future than in the past permits this reasoning, but the question becomes whether or not the assumption actually holds. My intuitive reaction is that it doesn't.

Comment author: billswift 08 August 2012 05:31:05PM 6 points [-]

it depends upon your past self having more information than your current self.

Or maybe you just spent more time thinking it through before. "Never doubt under pressure what you have calculated at leisure." I think that previous states should have some influence on your current choices. As the link says:

If your evidence may be substantially incomplete you shouldn't just ignore sunk costs -- they contain valuable information about decisions you or others made in the past, perhaps after much greater thought or access to evidence than that of which you are currently capable.

Comment author: OrphanWilde 08 August 2012 07:58:50PM 0 points [-]

That presumes you've forgotten why you did something to begin with, your reasoning having created that information. Again, given the precise conditions, I think it's a perfectly fine argument. I just don't find those conditions more probable than the converse, which is to say, having more information.

Comment author: drethelin 08 August 2012 07:46:12PM 1 point [-]

Also remember the corollary that any decision made under pressure could probably stand to be reviewed at leisure.

Comment author: billswift 08 August 2012 11:05:55PM *  1 point [-]

Everybody does that anyway, it is usually called second-guessing yourself. The best rule is to not decide under pressure unless you really have to, take the time to think things through.