Saturday, September 12, 2009

Torpedoed By Sunk Costs


Since becoming the guardian of a scam victim, I find myself muttering a lot. One of the things I mutter is, "How, after losing so much money, could my dad continue to send payments to those Jamaican sleazeballs and their American helpers?"

It took me a while to realize that the answer might lie in the question itself: Perhaps my father kept sending money because he has lost so much of it.

At first this idea seemed so absurd that I dismissed it out of hand. I couldn't reject the notion completely, however, for one key reason: Scores of unimpaired people - including me - throw good money after bad, due to a form of faulty reasoning called the Sunk Cost fallacy.

This phenomenon is well named, because those who fall prey to it continue to sink funds into losing ventures, on the grounds that if they stop, they won't recoup their investment.

In reality, the Sunk Cost fallacy is actually two fallacies, that:
  1. Despite all evidence to the contrary, the spender's investment will ultimately pay off, and
  2. Past losses justify future expenditures
Two wrongs don't make a right, of course, and no undertaking better qualifies as a loser than a Sweepstakes scam. Why victims cannot see this, escapes me. Yet they do not, and some become so psychologically invested in this losing game that nothing and no one, can keep them from playing it.

Unwilling to admit defeat and cut their losses, serial victims of Advance Fee fraud sometimes see no alternative but to keep paying the crooks' bogus fees, in the hope that someday their ship will come in.

Which it never does, because it has been blown out of the water by the Sunk Cost fallacy, and the criminals who exploit it.