Sunk Costs and Public Commitment

Sunk Costs & Public Commitment

The Sunk Cost fallacy is an example of an error in human judgment that we should all try to keep in mind. Thinking about sunk costs and how we respond to them can help us make better decisions in the future. It is one small avenue of cognitive psychology research that we can act on and see immediate benefits in our lives.
 
 
Sunk costs pop up all over the place. Are you hesitant to change lines at the grocery store because you have already been waiting in one line for a while and might as well stick it out? Did you start a landscaping project that isn’t turning out the way you want, but you are afraid to give up and try something else because you have already put so much time, money, and effort into the current project? Would you be mad at a politician who wanted to pull out of a deadly war and give up because doing so would mean that soldiers died in vain?
 
 
All of these examples are instances where sunk cost fallacies can lead us to make worse decisions. In his book The Better Angels of Our Nature, Steven Pinker writes, “though psychologists don’t fully understand why people are suckers for sunk costs, a common explanation is that it signals a public commitment.” In the examples above, changing course signals something weak about us. We are not patient and not willing to stick out our original decision to wait in one grocery store line relative to another. We are not committed to our vision of a perfect lawn and are willing to give up and put in cheap rock instead of seeing our sprinkler system repair all the way through. And we are not truly patriotic and don’t truly value the lives of soldiers lost in war if we are willing to give up a fight. In each of these areas, we may feel pressured to persist with our original decision which has become more costly than we expected. Even as costs continue to mount, we feel a need to stay the course. We fail to recognize that sunk costs are in the past, that we can’t do anything to recoup them, and that we can make more efficient decisions moving forward if we can avoid feeling bad about sunk costs.
 
 
Tied  to the pressure we feel is a misperception of incremental costs. Somehow additional time spent in line, additional effort spent on the lawn, and additional lives lost in battle matter less given everything that has already passed. “An increment is judged relative to the previous amount,” writes Pinker. One more life lost in a war doesn’t feel as tragic once many lives have already been lost. Another hundred dollars on sprinkler materials doesn’t feel as costly when we have already put hundreds into our landscaping project (even if $100 in rock would go further and be simpler). And another minute in line at the grocery store is compared the to the time already spent waiting, distorting how we think about that time.
 
 
If we can reconsider sunk costs, we can start to make better decisions. We can get over the pride we feel waiting out the terrible line at the grocery store. We can reframe our landscaping and make the simpler decision and begin enjoying our time again. And we can save lives by not continuing fruitless wars because we don’t want those who already died to have died in vain. Changing our relationship to sunk costs and how we consider incremental costs can have an immediate benefit in our lives, one of the few relatively easy lessons we can learn from cognitive psychology research.
Misperceptions of Violence

Misperceptions of Violence

In general, I am very interested in our misperceptions. We constantly go about making judgments of the world, making decisions, and developing a general sense of how the world operates based on what we pay close attention to, what we hear on a regular basis, and all the information that makes its way into our orbit. But there is only so much that we can pay close attention to and various factors will influence what information comes our way. This means that our perceptions of the world are subject to bias and noise. We may be very interested in one topic and become an expert in that narrow topic. A co-worker may constantly talk about a subject they are fascinated by, so we may pick up certain ideas from their conversations. Newspaper headlines may shape the way we think about certain topics, even if we never read the whole story.
 
 
Violence is one such area where we may have misperceptions of reality due to bias and noise. News stories are biased toward the exciting and unusual events that take place. No one wants to listen to a story about how an improved traffic calming near a school reduced car collisions and improved pedestrian safety. News outlets know this and instead cover the instances when there is a traffic accident in a school zone. Social media channels are similarly fueled by the surprising and emotional things that people have to share. Once again, people are likely to react more strongly to a story about a robbery at a shopping center near a school than a story about how improved lighting and a night time security guard at the shopping center reduced crime in the area by 10%. As Steven Pinker writes in The Better Angels of Our Nature, “no matter how small the percentage of violent deaths may be, in absolute numbers there will always be enough of them to fill the evening news, so people’s impressions of violence will be disconnected from the actual proportions.”
 
 
Misperceptions of violence, along with other misperceptions about the world, matter. People make decisions about public policy, make personal choices, and interact with each others in society in different based on their perceptions. Thinking of violence specifically, we make different decisions about where to invest government funds, how long to incarcerate criminals, and how many police officers to hire depending on our perceptions of crime. We chose which schools to send our kids to, where to go out for dinner, and where to live based whether we think violence is prevelent in a given area. We shop at certain businesses, smile at or look away from strangers, and exercise indoors our outside to some degree depending on our perceptions of violence relative to safety. Misperceptions in these areas can lead to discrimination, inequality, over- and under-policing, and over- and under-investment. Failing to accurately understand levels of violence can have real world consequences that can lead to wasted and misallocated resources and unfair treatment for some communities, particularly in societies with long histories of racial or economic injustice.
 
 
We pay attention to the flashing lights of police vehicles, remember news stories about gruesome murders, and react strongly to stories of violence on social media – thereby boosting the visibility of those stories – and as a result we feel like we are living in a dangerous world. We don’t remember all the times a family member went running at 6 in the morning and didn’t get mugged. We don’t remember all the daily commutes to work without seeing a police chase, we don’t remember the days where the national news and our social media channels were not dominated by stories of violent crime. We perceive that the world is getting less safe, that crimes are increasing, and that we must take steps to better secure ourselves and our property. However, this is a misperception. Despite fluctuations from year to year (I will note that crime rates have increased since 2020, however it is unclear if this is a new trend or random fluctuation) humanity world wide has become less violent and has been trending toward reduced violence for a very, very long time. In The Better Angels of Our Nature Pinker argues that we would experience a different world if our perceptions of violence matched reality.
Poverty - $2.00 A Day - Kathryn Edin & H. Luke Shaefer

Who Experiences Deep Poverty

The image of deep poverty in the United States is unfairly and inaccurately racialized. For many people, it is hard to avoid associating words like poverty, ghetto, or poor with black and minority individuals and communities. For many, the default mental image for such terms is unavoidably non-white, and white poverty ends up taking on qualifiers to distinguish it as something separate from the default image for poverty. We use white-trash or something related to a trailer park to distinguish white poverty as something different than general poverty which is coded as black and minority.
This distinction, default, and mental image of poverty being a black and minority problem creates a lot of misconceptions about who is truly poor in America. In the book $2.00 A Day Kathryn Edin and H. Luke Shaefer write, “the phenomenon of $2-a-day poverty among households with children [has] been on the rise since the nation’s landmark welfare reform legislation was passed in 1996. … although the rate of growth [is] highest among African Americans and Hispanics, nearly half of the $2-a-day poor [are] white.” (Tense changed from past to present by blog author)
Poverty, in public discourse and public policy, is often presented as a racial problem because we do not recognize how many white people in the United States live in poverty. The quote above shows that the racialized elements of our general view of poverty do reflect real differences in changing rates of poverty among minority groups, but also reveals that almost half – nearly a majority – of people in poverty are white.
The consequence is that policy and public opinion often approaches poverty from a race based standpoint, and not from an economic and class based standpoint. Policy is not well designed when it doesn’t reflect the reality of the situation, and public discourse is misplaced when it fails to accurately address the problems society faces. Biases, prejudices, and discriminatory practices can be propped up and supported when we misunderstand the nature of reality, especially when it comes to extreme poverty. Additionally, by branding only minorities as poor and carving out a special space for white poverty, we reducing the scope and seriousness of the problem, insisting that it is a cultural problem of inferior and deficient groups, rather than a by-product of an economic system or a manifestation of shortcomings of economic and social models. It is important that we recognize that poverty is not something exclusive to black and minority groups.
Fluency Versus Frequency

Fluency Versus Frequency

When it comes to the availability heuristic, fluency seems to be the most important factor. The ease with which an example of something comes to mind matters more than the real world frequency of the event. Salient examples of people being pulled over by the police, of celebrity divorces, or of wildfires cause our brains to consider these types of events to be more common and likely than they really are.

 

In Thinking Fast and Slow, Daniel Kahneman shares results from a study by German psychologist Norbert Schwarz which demonstrates fluency versus frequency in our analysis of the world. Schwarz asked participants to list six instances in which they behaved assertively, and to then rate their overall level of assertiveness. In a second instance, Schwarz asked participants to list twelve instances where they were assertive and to then rate their overall level of assertiveness. What the studies show is that those who were asked to come up with 6 instances of assertiveness considered themselves to be more assertive than those asked to come up with 12 instances. Kahneman describes the results by writing, “Self-ratings were dominated by the ease with which examples had come to mind. The experience of fluent retrieval of instances trumped the number retrieved.”

 

The logical expectation would be that asking people to list 12 instances of assertiveness would give people more reason to believe they were a more assertive person. However, that is not what the study showed. Instead, what Kahneman explains happened is that as you are asked to pull more examples from memory, your brain has a harder time remembering times when you were assertive. You easily remember a few stand-out assertive moments, but eventually you start to run out of examples. As you struggle to think of assertive times in your life, you start to underrate your assertiveness. On the other hand, if you only have to think of a handful of assertive moments, and your brain pulls those moments from memory easily, then the experience of easily identifying moments of assertiveness gives you more confidence with rating yourself as assertive.

 

What I find fascinating with the study Kahneman presents is that the brain doesn’t rely on facts or statistics to make judgments and assessments about the world. It is not setting a bar before analysis at which it can say, more examples of this and I am assertive, or fewer examples and I am not assertive. It is operating on feeling and intuition, fluidly moving through the world making judgments by heuristics. The brain is not an objective observer of the world, and its opinions, perspectives, and conclusions are biased by the way it operates. The study suggests that we cannot trust our simple judgments, even when they are about something as personal as our own level of assertiveness.
Recognize Situations Where Mistakes Are Common

Recognize Situations Where Mistakes Are Common

“Because System 1 operates automatically and cannot be turned off at will, errors of intuitive thought are often difficult to prevent,” writes Daniel Kahneman in Thinking Fast and Slow. System 1 is how Kahneman describes the intuitive, quick reacting part of our brain that continually scans the environment and filters information going to System 2, the more thoughtful, deliberate, calculating, and rational part of our brain. Biases in human thought often originate with System 1. When System 1 misreads a situation, makes a judgment on a limited set of information, or inaccurately perceives something about the world, System 2 will be working on a poor data set and is likely reach faulty conclusions.

 

Kahneman’s book focuses on common cognitive errors and biases, not in the hope that we can radically change our brains and no longer fall victim to prejudices, optical illusions, and cognitive fallacies, but in the hopes that we can increase our awareness of how the brain and our thinking goes off the rails, to help us marginally improve our thought processes and final conclusions. Kahneman writes, “The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high.”

 

If we are aware that we will make snap judgments the instant we see a person, before either of us has even spoken a single word, we can learn to adjust our behavior to prevent an instantaneous bias from coloring the entire interaction. If we know that we are making a crucial decision on how we are going to invest our finances for retirement, we can pause and use examples from Kahneman’s book to remember that we have a tendency to answer simpler questions, we have a tendency to favor things that are familiar, and we have a tendency to trust other people based on factors that don’t truly align with trustworthiness. Kahneman doesn’t think his book and his discussions on cognitive fallacies will make us experts in investing, but he does think that his research can help us understand the biases we might make in an investment situation and improve the way we make some important decisions. Understanding how our biases may be impacting our decision can help us improve those decisions.

 

Self- and situational-awareness are crucial for accurately understanding the world and making good decisions based on sound predictions. It is important to know if you can trust an educated guess from yourself or others, and it is important to recognize when your confidence is unwarranted. It is important to know when your opinions carry weight, and when your direct observations might be incomplete and misleading. In most instances of our daily lives, the stakes are low and errors from cognitive biases and errors are low, but in some situations, like serving on a jury, driving on the freeway, or choosing whether to hire someone, our (and other people’s) livelihoods could be on the line. We should honestly recognize the biases and limitations of the mind so we can further recognize situations where mistakes are common, and hopefully make fewer mistakes when it matters most.

Determining Good or Bad

What makes a situation good or bad? In his book, The Obstacle is the Way, Ryan Holiday follows the stoic logic of Marcus Aurelius to explain that our perceptions and opinions are how we determine whether any given situation is good or bad. How we decide to interpret any event shapes our actions, and we can move in directions that will be either beneficial or detrimental for us and our community, but it is always our choice based on our interpretations of the world around us. Holiday writes, “In fact, if we have our wits fully about us, we can step back and remember that situations, by themselves, cannot be good or bad. This is something — a judgment — that we, as humans beings, bring to them with our perceptions.”
It is obvious that the most horrific human experiences and sufferings in our species’ history are bad situations, but when we look at the daily experiences of our lives, we rarely face any challenges or obstacles that are inherently bad. We will face points of incredible bad luck and experience stretches of good luck, but it is ultimately our decision and perception that determines what we think of our luck. A flat tire when we are already late for work could be a very bad situation, but if we can take hold of our emotions then we can recognize that the tire on our car has no direct contact with the faculties of our mind, and therefore has no direct control over our thoughts. Allowing a random situation to take hold of our mind and shape our perception is an act of abandoning what makes us human.  If instead we ask ourselves how we have truly been harmed, and if we recognize that our lives are truly never made better or worse by nearly any situation, then we can grow and adapt.
When Holiday writes of using obstacles to find our direction, he is writing about building the ability in our mind to recognize that it is our reactions to obstacles that shapes the path of our lives. Obstacles present opportunities to grow, but in the moment it is never easy or encouraging to have our path obstructed by challenges. However, self-awareness and reflection on our thoughts can help us see the best ways to move forward. When we choose not to become angry and dejected over situations, we give our minds the power to be creative and resilient. Through greater perspective we recognize that nothing truly changes our lives besides our own mindset.