Collective Action and the Sunk Cost Fallacy, by the editorial board

Hick Planet magazine

tryna find the grownups table on a hick planet

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Thursday, 2019 November 28th

issue 1

In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken.

We live in a world where there are huge sunk costs in terms of infrastructure and real estate. The prospective costs we face due to climate change are so much greater that it boggles the mind. Think about how much it will cost to protect New York City from a 25-foot rise in sea level. If you look at the aftermath of Hurricane Sandy, you begin to get an idea of the enormity of the prospective costs involved for just one city.

Most people react with denial when presented with such possibilities. What probability of something like a 25-foot rise of sea level happening would be needed to get people to act? Even if it were certain to happen, it will only happen in “the future”. Humans are not good at dealing with the future apparently.

What should be done in the case of a city like New York. Should it be abandoned? Should infrastructure be built assuming higher sea levels? Who will make such decisions? Not only are humans ill-suited for dealing with the future, but they are also not very good at collective action.

More fundamental than the financing options, which are important, are the questions about what needs to be done to ensure our future. Is our government ready, willing, and able to cope with the existential problems we face? Are we as a people ready to face the consequences of our lifestyle and economic choices of the last 75 years?

Once the will to face the consequences is mustered, we will collectively need to take responsibility and make the necessary changes to our economy and society. If we are not collectively discussing the issues at this point, never mind a practical course forward, what can we as individuals do to aid in solving the problems we face?

We owe a debt to the future, as we’ve already created extreme challenges for them. Will we be able to change course in time to avoid “hitting the wall”? It is incumbent upon us to try to make this a better world for those that follow us.

Thus the climate crisis presents one of the most significant and difficult challenges to humanity, as it is a problem of a probable future that is uncertain and requires massive collective action to address. We must not fall victim to the sunk cost fallacy of letting unrecoverable costs influence our decision-making about future spending and economic investment. We need to look at the world in a fresh, new way and assume some bad-case scenarios (not even worst-case ones) in order for people to start discussing our future in a rational and, dare we say, a hopeful way.