The Sunk Cost Fallacy shapes History

The concept of the Sunk Cost Fallacy explains many of history’s greatest catastrophes, including World War I, the British Empire, and Communism.

People “commit the Sunk Cost Fallacy when they continue a behavior or endeavor as a result of previously invested resources,” Behavioral Economics observes. Factors that drive the sunk cost fallacy include fear of loss, tradition, patriotism, ideology, loyalty towards institutions or people, history, and commitments.

A classic example of the sunk cost fallacy is a fan who supports his team through many losing seasons. The fan supports the team not because they win, but because he has invested years of time, money, and emotions in supporting his team.

Similarly, voters support losing political parties that stray far from their official ideals because of time, emotion, and reputation invested in the party. Voters fear their earlier loyalty to the party is wasted if they don’t vote for the standard bearer, even if the standard bearer is an incompetent buffoon.

Historically, we can blame many wars, revolutions, and collapses on the Sunk Cost Fallacy. Frighteningly, the Sunk Cost Fallacy has killed millions, brought down empires and devastated continents.

Historical Examples of the Sunk Cost Fallacy include:

World War I

The greatest and most destructive example of a Sunk Cost Fallacy in history is World War I.

The First World War caused around 20 million deaths, wounded 21 million people, and destroyed several of history’s great empires.* Interestingly, I consider World War I a giant Sunk Cost Fallacy.

To explain, each soldier killed invested people more deeply in the war. The higher the body count, the more support the war found. Almost the entire populations of the warring powers supported the war.

Only a few extraordinary individuals such as Albert Einstein, Lenin, and Eugene Debs could resist the Sunk Cost Fallacy. Most people supported the war effort because a negotiated peace could make our boys’ deaths meaningless.

World War One was a meaningless conflict in which there were few ideological differences between the two sides. For example, the British and German empires were industrial powers with monarchs and quasi-democratic governments.

Yet Germans and British believed the myth that civilization would collapse if the other side won. People bought into that myth because of the Sunk Cost Fallacy.

Similarly, many people supported the Word War I war effort to uphold traditional social, culture, and political systems. Ironically, the war destroyed those institutions. Notably, four of Europe’s historic Empires; Austria-Hungary, Germany, Russia, and the Ottoman Empire, collapsed because of World War I. Another empire, the British, was fatally weakened by the conflict.

The Sunk Cost Fallacy drove traditionalists to destroy the traditional institutions they valued.

Communism

Communism was one of history’s greatest failures. Tens of millions of people supported Communist Parties and revolutions for generations. Yet those revolutions delivered none of their promises.

The Sunk Costs Fallacy explains why so many people supported Communism, even as its crimes and failures were visible to all. In Communist nations such as Russia and China, many people dedicated their lives to Communism. Thus, those people feared abandoning Communism no matter how much it failed.

Many Russians remained loyal to Communism, even as it weakened the nation and wasted resources. All the Soviet casualties in World War II and the Russian Civil War, and all the deaths under Lenin and Stalin became reasons to preserve the Communist revolution at all costs.

In the United States, many leftists and intellectuals sacrificed heavily for sympathies with Communism. For instance, Hollywood actors, screenwriters, and directors lost their careers out of loyalty to Communism during the Black List era of the 1950s.

Thus Communism became a Sunk Cost for those people. If people on the Black List admitted Communism was wrong, they had to admit they threw their careers away for nothing. Rather than admit their lives were a waste the Black Listed doubled down on Communism.

The British Empire

During the late 19th and early 20th centuries, no nation became more invested in its empire than Britain.

Loyalty to the Empire became a matter of patriotism and national identity for the British. Schools taught children that the Empire was vital to Britain’s survival. Minor colonial wars became important conflicts and topics of conversation.

New media played a role in the fallacy. Every English or Scottish citizens could participate in the Empire through his or her morning newspaper. Publishers such as Lord Northcliffe pushed Empire because it sold newspapers.

The Empire became the basis of British popular culture. Novels, stories, plays, songs, and movies all glorified the empire. Even murder mysteries such as Sherlock Holmes and many of Agatha Christie’s stories; think Death on the Nile, were about the Empire.

Before World War II, the British film industry existed to sell the concept of Empire to British and Canadian subjects. British factory workers, Australian beachcombers, New Zealand sheep farmers, and Canadian farmers came to believe that control of India was vital to their future.

Many British families had investments in the Empire, for example, all the families who had a male member killed or injured in a colonial war. Similarly, many middle class Britons made a living from the Empire as soldiers, administrators, merchants, or missionaries. Many of them sacrificed their lives and comforts for the Empire.

The Empire became a giant sunk cost for the United Kingdom. During the 1930s, the British government invested millions of pounds to preserve and defend the Indian empire while neglecting the Kingdom’s defenses.

Even after near defeat in 1940 and economic devastation after 1945, the British remained committed to Empire. A country that could no longer defend itself without American help thought it had an obligation to rule Kenya, control the Suez canal, and maintain a garrison in Singapore.

Only after five decades of economic decline and near bankruptcy did the British began withdrawing to points East of Suez in 1968 and abandon the sorry remains of the empire. Sadly, Empire nostalgia has recently revived in post-Brexit Britain and efforts to reestablish Britain’s role as a world power.

Neo-imperialists ignore the reality that playing World Power will do nothing for the United Kingdom or its people. Instead, the psychological need for imperial glory is back. The sunk cost fallacy remains, even though the cost itself is history.

History shows the Sunk Cost Fallacy can destroy nations and empires. Hopefully, today’s the leaders of such great powers as the United States and the People’s Republic of China will study the Sunk Cost Fallacy and learn how to avoid it.

*http://www.centre-robert-schuman.org/userfiles/files/REPERES%20%E2%80%93%20module%201-1-1%20-%20explanatory%20notes%20%E2%80%93%20World%20War%20I%20casualties%20%E2%80%93%20EN.pdf