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

by kpreid 1 min read8th Aug 20125 comments


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?.


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.