The Sunk Cost Effect

Ah, the Concorde; the joint development program of the British and French governments that pushed ahead even when the economic benefits of the project were no longer possible. It was designed to be a passenger aircraft capable of supersonic flight but its lasting legacy resides mostly in game theory, where it has been adopted as a description of irrational behavior - the Concorde fallacy. More generally, the process behind the fallacy is known as the sunk cost effect.

As the Concorde example suggests, the problematic behavior in question is when a person continues to engage in a behavior due to their initial investment, even though the payoff is no longer available. In common parlance, this could be described as "knowing when to cut your losses"; or, as a famous philosopher once remarked, "You got to know when you hold 'em, know when to fold 'em, know when you walk away and know when to run". It was either Descartes or Kenny Rogers, I can never remember. 

It is mostly of interest to researchers because these behaviors violate our optimality predictions and instead of engaging in behaviors which maximise returns, there seems to be a consistent deviation towards sub-optimal responding. Initially it was believed to be an irrational approach that was unique to humans (and perhaps even limited to adult humans), which led to the hypothesis suggesting that the phenomenon was a product of higher-order thinking - specifically, the overgeneralisation of a rule like "Don't waste"¹. Recent research, however, suggests that this might not be true^{2, 3}.

For example, Kacelnick and Marsh⁴ looked at the preferences of starlings in a two phase task where they initially had to respond differently on two possible schedules - a high effort schedule (flying 16 times over a 1m distance) and a low effort schedule (flying 4 times over a 1m distance) that were signaled by different colours. In the second phase, the two alternatives had the same effort requirement but they found that the subjects would consistently prefer the alternative that had the same colour as the high effort schedule. The results were interpreted in terms of the sunk cost fallacy by arguing that the level of investment involved with the high effort schedule produced a greater perceived value of that alternative.

The Unpredictability of Humans

There is a common belief among the general public that humans are unpredictable. This seems to stem from the intuitive understanding that, at any point, we could simply choose to behave in a completely different way - so how could such a thing possibly be predicted? In contrast to this, I like to think of humans as meaty, irregular-shaped billiard balls.

This extends the billiard ball construct that is often used to characterise and demonstrate principles of physics but adds the component of irregularity (the "meaty" part is just for artistic effect). The importance of this distinction is that it describes the illusion of unpredictability, in that a regular billiard ball is said to be predictable as it travels in a way that is consistent with the direction of the initial force acting upon it, but an irregular shaped billiard ball will appear to almost have "a mind of its own" as multiple forces and impacts drive it in various directions. To illustrate this, I will appeal to my dog's favourite toy:

(For any hardcore behaviorists, I recommend you turn away now as I am about to engage in some mild anthropomorphism).

My dog loves this ball (currently sans a number of nodules that have been gnawed off) and I believe it is because, unlike a tennis ball, it will bounce in an unpredictable way when thrown. Sometimes it just bounces forwards like a tennis ball, but often it will swerve wildly to the left or right, and then bounce off in some other direction after making contact with the floor again. I can't say for sure but it seems to me that this captivates my dog as it almost mimics the unpredictability of living creatures (which, incidentally, seem to be the only other thing that can hold his attention for any extended period of time). 

HUMAN NODULES

My above analogy was a rather roundabout way of trying to distinguish between true unpredictability and pseudo-unpredictability. The former refers to aspects or agents in the world which cannot be predicted due to some inherent stochastic component, whereas the latter refers to things which only appear to be unpredictable due to our ignorance of the details of the situation. In the case of the irregular-shaped billiard balls, the "unpredictability" comes about as a result of us not having direct accessibility to the variables affecting its behavior at any point in time; that is, we don't know which nodule is being acted upon, or at what angle, or with what force, and this prevents us from making simple predictions like "if I hit the ball on this angle, it will travel in this direction". 

So what are these 'nodules' on humans? As you might have expected, humans have slightly more nodules than the ball my dog loves, and these nodules are composed of far more intricate substances than the rubber of the ball. They are the complex interactions between our genetics and environment, our histories and current situations, our perceptions and reality, and so on. When we are pushed by a force, we are not only behaviorally thrust in one simple direction, but instead we are essentially pushed into another force (e.g. our genetics) which pushes us into another direction that crashes into another force (e.g. our reinforcement history) which pushes into another direction again, ad infinitum.