The NY Jets Sunk-Cost Effect

by Christopher Paul on January 14, 2013

I love it when business and sports concepts meet[1].

James Surowiecki writes the new York Jets aren’t making the tough decisions call with Mark Sanchez because they’ve already invested a great deal of time and money on him. He writes:

The Jets have stumbled into a classic economic dilemma, known as the sunk-cost effect. In a purely rational world, Sanchez’s guaranteed salary would be irrelevant to the decision of whether or not to start him (since the Jets have to pay it either way). But in the real world sunk costs are hard to ignore. Hal Arkes, a psychologist at Ohio State University who has spent much of his career studying the subject, explains, “Abandoning a project that you’ve invested a lot in feels like you’ve wasted everything, and waste is something we’re told to avoid.” This means that we often end up sticking with something when we’d be better off cutting our losses—sitting through a bad movie, say, just because we’ve paid for the ticket. In business and government, the effect pushes people to throw good money after bad. The quintessential case of this is the Concorde. There was never a convincing business case for the supersonic airliner, and there were numerous attempts to kill it. But those attempts all failed, in large part because of the billions that had already been spent.

I don’t know much about the Jets, honestly, because I’ve been a New York Giants fan since I saw them win the 1990 Super Bowl. But I know enough about sunk costs to not let it sway your decision to end a project. It’s not easy, I can assure you. But good managers (especially the sports kind) know when to give up on a project in spite of the resources already invested.

via Nicholas Thompson

  1. And yes, I know that professional sports is a business.  ↩

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