Sunk cost ‘fallacy’?
Coen Armstrong

Immediately on reading this, three books come to mind: “The Age of Gold”, “Klondike Kate”, and “The Worst Hard Time”.

The first is an epic chronicle not only of the California gold rush commencing in 1849, but broadens the scope of the event into its global and permanent significance as a world-changing phenomenon,; the second is a brilliant biography of an enterprising young lady who made the first of many fortunes she was to gain and lose, as an entertainer in the gold camps of Alaska in the 1890s, while the final volume is a masterpiece of investigative history which examines the causes and effects of the Dust Bowl in the Great Plains during the 1920–30s.

Two gold rushes and a runaway wheat boom are depicted, all sharing the same mass effect governing the behavior of endless thousands of fortune-seekers, most of whom lost everything they had in the process, but effectively all of whom were responding to the same complex of impulses the author above describes as the “sunk cost fallacy.”

One can almost hear the inner workings of myriad minds, self-deceiving with the same predictable list of worthless cliches: “I’ve come this far, my luck is bound to change, it can’t happen to me, prices have to go back up again, how bad can it get?” etc, etc.

Possibly the most dramatic and ultimately catastrophic example of all these mindsets leading to the worst possible outcomes, is the “suitcase farmer” wheat boom/bust of the high plains during and after the First World War.

For a few years, the notion of plowing up seemingly limitless grasslands to plant wheat must have seemed an almost effortless way to make vast profits: European agriculture had been devastated by war and absence of labor, while demand for foodstuffs to feed millions of soldiers and civilians in wartime created an unprecedented continuous rise in prices, attended by availability of cheap land following the widespread failure of original Homestead Act claims in the midwestern US; all led to a gold-rush-type spree of speculation but with the added advantage of never having to dig a shaft or dip a pan. All one had to do in the early going, was buy some low-cost acreage, a bit of seed, a horse or two and a few implements, hire one’s pick of available and desperate laborers, and pray for rain.

The catastrophe that was to become the Dust Bowl, began with a crash in prices a few years after the war, plus the beginnings of a prolonged drought. And, sunk-cost fallacy writ gargantuan, with each year of unexpected failure seeming to defy and taunt the logic of the wartime boom, wheat growers simply planted more and more wheat in the face of plummeting prices, plowed up more and more land to create larger yields to offset falling returns per acre, and the fallacies became an epochal behavioral dysfunction: “how bad can it get? Prices are sure to go back up…”

But it got worse. Prices never went back up, but the land itself did: dust storms like no one even dreamed possible began, and didn’t end for a decade, with so much ancient topsoil thousands of years and millions of buffalo in the making now gone, the ground just got up and walked across the sky for years on end. It was arguably the most devastating entirely human-caused ecological disaster in known history, all set in motion by a series of poor decisions made by countless self-deluded minds, indulging themselves in sunk-cost fallacy.

I can’t help but wonder how long it will take, in this age of “startups” and “entrepeneurs” and “personal brands”, of so many people building up artificial fortunes and incalculable debt loads while making and marketing what seems in sum like nothing in particular of any redemptive value, before the inexorable logic of this fallacy catches up and brings on yet another post-gold-rush chain reaction of calamities. It has happened with “dot-coms”, with real estate, with stocks, with S&Ls, and yet with each new Latest Thing deceiving the gold-rushers into believing they have tapped the ultimate Mother Lode, the mass stampede of self-deception repeats and plays itself out, again and again and again.

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