Thursday, January 18, 2007

Good $ After Bad?

George Bush's super-hyped speech calling for escalation in Iraq is a political disaster. But moreover, the continuing to fund this war is getting to be very expensive. The cost of the war so far exceeds 1.2 Trillion dollars or at least in excess of 350 Billion according to congressional appropriations. The political argument you hear is "but we've already gave 3000 lives to bringing a democracy to Iraq". The war has now lasted longer than WWII and we still don't know why we are there. Perhaps at some point, there is no reason to continue to throw good money after bad.

In economic and in business decision-making, "sunk costs" are costs that have already been incurred and which cannot be recovered to any significant degree. Applying microeconomic theory, only variable costs (costs that are will change due to the proposed course of action) are relevant to a decision. Economics proposes that a rational actor does not let sunk costs influence one's decisions, because doing so would not be assessing a decision exclusively on its own.

For example, when one pre-orders a non-refundable movie ticket, the price of the ticket becomes a sunk cost. Even if one decides that one would rather not go to the movie, there is no way to get back the money originally paid. But to go to the movie (and not liking it) simply because we've already paid for the ticket is an irrational decision. And making a party of it and inviting more of your friends to the bad movie is simply insane. (or maybe just a Rocky Horror Picture Show)

It's Time ton Say No on Iraq

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