Iraq and the Sunk Cost Fallacy

“On a trip to the Middle East this spring, we heard a constant refrain in capitals from the Persian Gulf to Israel, “Can you please explain what your president is doing?” “Why is he walking away?” “Why is he so blithely sacrificing the hard fought gains you secured in Iraq?” “Why is he abandoning your friends?” “Why is he doing deals with your enemies?” –Dick and Liz Cheney in the Wall Street Journal, 6/17/14

Every time I am tempted to gamble, even a little bit, I think back to my last trip to Las Vegas—perhaps the most philosophically important city in the United States. The Las Vegas Strip is what happens when money is not an object: full-scale replicas of the Egyptian Pyramids, indoor recreations of the Venetian canals, that sort of thing. Hotel and casino owners have billions of dollars to spend on the tackiest tourist bait imaginable. This does not happen because people win their games.

Las Vegas is a trillion dollar testament to the fallibility of human reason — a living tribute to the fact that we are bad at math. We are not wired to understand probabilities, we have an irrational aversion to loss, and we always think that the jackpot is just around the corner.

Behavioral economists often define this set of tendencies — bad evaluation of probabilities, overvaluation of past losses, and unreasonable expectation of future gains — as the “sunk cost fallacy.”

Once we have incurred a cost, we overcommit to its recovery. We continue to risk resources in order to get back what we have lost, and, as we continue to lose resources, we have more and more motivation to recover our losses. Gamblers call this “throwing good money after bad.” The solution is not to quit while you are ahead; it is to quit while you are still solvent.

Wars, too, are subject to the sunk cost fallacy. Nations that have invested their blood and treasure in an armed conflict feel strongly that they must remain in the conflict until they “win.” Otherwise, their brave soldiers will have died in vain.

Nations that have invested their blood and treasure in an armed conflict feel strongly that they must remain in the conflict until they 'win.'
Michael Austin
This is a hard position to argue against. People feel a duty to honor soldiers’ sacrifices by making sure that we achieve the goal they sacrificed for. Anyone who says otherwise had better be ready to be called a soldier-hating traitor.

It is largely on these grounds that we are facing the possibility of another war in Iraq. As one columnist writes, “Our boys gave their lives . . . to free Iraqis from a murderous dictator. Obama has allowed this to fester, and has armed these same men who have retaken every bit of ground our troops paid for.”

The solution? Send more troops in to protect the sacrifices that we have already made.

But this is exactly how we must not think. The costs we have already incurred in Iraq are very real, both in financial resources and in human lives. But these prices have already been paid, and we will never recover them. The only thing that matters now is the future.

Do we have vital security interests at risk in Iraq today? Can we protect those interests with military action? Are the benefits worth the costs? Is this a problem that another armed conflict can solve? If the answer to any of these questions is “no,” then we need to quit while we are solvent.

The argument that we should go back into Iraq to protect past sacrifices connects with the way that human beings think. We are lousy intuitive statisticians. We overvalue past losses, and we undervalue future risks. Both our wars and our gambling industries testify to our inability to think clearly about these issues.

But we have to try.

The best way to honor the sacrifices of the brave men and women who died in Iraq is to make sure that there aren’t any more of them. And the best way to recoup the trillion dollars that we wasted in an unnecessary war is to spend the next trillion on something better.