It is one of the few universally accepted facts in economics that reasoning from sunk costs is a fallacy. Every econ 101 student comes in familiar with “we’ve come too far to stop now” type arguments and every one of them is told that this is absolute bunk. We ought to make decisions based on how our choices will influence the future, without consideration of past losses. But it is very strange that for a science ostensibly set on describing how humans make choices under conditions of scarcity, we feel the need to correct how our students make their decisions. If sunk cost reasoning is so universal, isn’t it reasonable to assume that it has come in handy once or twice?

The existence of this impulse is something no one would deny. Video game designers take advantage of it all the time, throwing frustrating obstacles in that consume a ton of players’ time, resulting in players feeling invested in seeing the game to completion. One reviewer calls this player investment manipulation, and discusses an indie game that provides a sort of reductio ad absurdum of the concept.

It’s no secret that actual human reasoning does not look very much like the pareto-utilitarian calculations described by economics, even when the end results are strikingly similar. This is the basis of behavioral economics. It seems to me that sunk cost reasoning is just another one of the laundry list of heuristics to be found in that literature.

It could be that at some point in our species’ history, the motivation to see something through to completion had a greater probability of ensuring survival than having a high willingness to cut one’s losses. Given that at least some of our ancestors hunted by chasing their prey for extremely long amounts of time, and that agrarian societies require patience over long time frames, it’s not too hard to see why this could be.

The sunk cost heuristic also appears to me to have something in common with prospect theory; in particular the part that describes our willingness to take greater risks when we are more likely to lose what we already have. As a general, if I cut my losses and call off the campaign entirely, I am a failure. If I see it through and win even in the face of greater losses, I am perceived to some extent as successful, or at least as not a complete failure. See for example, the north in the Civil War.

In general I think that these impulses are something it is better to study than to argue against. There’s no doubt that as a general strategy the tenets of econ 101 are correct on this score. But life doesn’t deal in generalities; we have to deal with particular circumstances and particular choices. This is why heuristics have proved so effective for nearly all of human history, over self-contained theoretical edifices. No heuristic pretends to apply to everything, but some heuristics work very well some of the time. Learning when to apply which is a matter of experience and practical wisdom.