The sunk costs effect rests on the irrational continuation of an action that has no chance of success, but in which we have invested significant finances, time, or effort. A person caught in this trap thinks that, because they have already incurred serious costs, they can\u2019t withdraw, as this would essentially
\nconfirm their losses to them. We\u2019ve all encountered numerous examples of this behavior. Someone who\u2019s invested money in a bad business is prepared to continue investing, keeping their illusory hopes of success alive. A gambler in a casino who\u2019s lost all his money will think nothing of pawning his watch in
\nhopes of recouping his losses. A car that keeps breaking down despitecountless repairs (and that you should really sell as quickly as you can) continues to be a drain on your finances, much to your mechanic\u2019s delight. We find it hard to make a decision that is tantamount to admitting we were wrong,
\nand we therefore continue to throw good money after bad.<\/p>\n
A particularly dangerous form of sunk costs is the image trap, as our reputation is also a kind of investment. The more we\u2019ve backed a venture, the more we feel emotionally tied to it. The more emotionally engaged we are, the harder it is to remain neutral about it. One of my friends from the high-tech sector observed many years ago that there\u2019s nothing more difficult than dropping a
\nproject you\u2019ve put your name to.<\/p>\n
It\u2019s no accident, then, that the sunk costs effect acquired its colloquial name from the Concorde story. This groundbreaking project became increasingly difficult to justify in economic terms, and at a certain point it really should have been shelved, set aside until better times or technological advances made
\nit possible to reduce its operating costs and noise levels, and so on.<\/p>\n
Unfortunately, the costs already incurred, together with the earlier enthusiastic declarations of support from not only the airlines but also the governments of France and the UK, left the decision-makers in a sunk costs trap, which they couldn\u2019t get out of. Irrational economic decisions were taken to continue the
\nwork and introduce the aircraft into the fleets of both carriers.<\/p>\n
Other examples abound in the world around us.
\nSurprisingly, even the Germans, consistently held up as models of solidity and scrupulous business sense, are struggling with a project whose financial dimension bears an uncanny resemblance to a bottomless pit. Berlin used to be served by three airports, Sch\u00f6nefeld, Tegel, and Tempelhof. With the reunification of Germany came the idea of building a large airport to accommodate a significant portion of the passengers from the existing ones and serve not only the German capital, but the whole of Brandenburg. After much squabbling, construction of the new Berlin Brandenburg Airport, slated to
\nserve close to 30 million passengers annually, began in 2006. Costs were estimated at over \u20ac2 billion, and the airfield was to open to passengers and airlines in 2010. The deadline wasn\u2019t met\u2014even though Tempelhof ceased operations in 2008 in anticipation of the planned opening of the new airport. Very
\nsoon, it appeared that nobody could realistically set a completion date for the project. By 2010, the sole achievement of the project team was to have chosen a patron for the airport (Willy Brandt, who beat out Albert Einstein, Marlene Dietrich, and Claus von Stauffenberg, among others). It was finally announced
\nthat the airport would open on June 3, 2012.<\/p>\n
In May 2012, this was amended to March 17, 2013. When September 2012 came around, a new opening date was given: October 27, 2013. As I\u2019m sure you\u2019ve guessed by now, that date also
\nturned out to be unrealistic, so, at the beginning of 2013, the authorities announced that the Berlin Brandenburg Airport would open in 2014. This, however, was still a highly optimistic prognosis, because at the beginning of 2014 we were informed that an accurate prediction for the opening date of the air-
\nport was simply not possible, especially as a fundamental problem had arisen:<\/p>\n
the only airline that was considering using Berlin Brandenburg as its main hub was the financially unstable Air Berlin (which ultimately went bust at the end of 2017, even further complicating the situation). It\u2019s worth adding that, to date,close to \u20ac7 billion have been sunk into the project\u2014and that\u2019s certain not to be the final figure. Klaus Wowereit, the mayor of Berlin and head of the team
\nsupervising the Berlin Brandenburg Airport project, resigned from his role as team lead in recognition of his involvement in the ongoing debacle. Despite this \u201cheroic\u201d gesture, nobody can say whether the new airport will ever be ready, and if so, at what cost.<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
THE ART OF DECISION MAKING<\/strong><\/em><\/p>\n PAWEL MOTYL<\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":" The sunk costs effect rests on the irrational continuation of an action that has no chance of success, but in which we have invested significant finances, time, or effort. 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