Dr. Hal Arkes in the department of psychology at Ohio State University has done extensive studies on the sunk-cost fallacy after he became interested for his personal involvement in politics twenty years ago. His most recent studies look at finding new ways to minimize the fallacy through interventions.
With the help of undergrads and some others at OSU Arkes gives volunteers a scenario having to do with an airplane company and the construction of a $10 million Radar Blank Plane. If the plane has been 90 percent completed, meaning millions of dollars already having been spent, but another company came up with a better version making the almost finished product “grossly inferior,” should the last 10 percent of the budget be spent anyways? Most of the testers said “yes.”
However, testers were then asked to do puzzles for an allotted amount of time then answer the question. The result was a dramatic decrease in the amount of students who were in favor of completing a project that was sure to fail. The difference, according to Arkes, had to do with the puzzles relaxing the decision-makers. “It cooled them down,” he said. “They didn’t ruminate about it.”
The professor, who has written a number of publications on the subject including his 1985 Organizational Behavior and Human Decision Processes, used the “Concorde” aircraft by the British and French, as an example. The costly developments of an airplane that didn’t have many orders but did have major marketing problems were ignored because of the amount of money having been already invested. “Everyone knew it was an albatross,” said Arkes. A crash in 2000 involving one of the Concorde planes put an end any future development. The sunk-cost fallacy is sometimes called the “Concorde fallacy” because of the incidence.
Another example Arkes used in order to describe the extent of situations to which the fallacy can extend involved the sorority sister of a young lady in his class. The student described one of her “sisters” as having been involved in an abusive relationship. Since so much time had been invested into the relationship thus far, she said she didn’t see any reason to abandon it even considering the abusive factor.
With the application of the sunk-cost fallacy idea Arkes’ student was able to persuade her friend to abandon the notion of having “wasted so much time” and get out of the relationship. “The idea can be applied to most things minus the Chicago Cubs pitching,” Arkes joked about the notion of “throwing good money after bad” as “blatantly dumb.”