Reality Check: The Sunk Cost Fallacy - WFXG FOX54 Augusta - Your News One Hour Earlier

Reality Check: The Sunk Cost Fallacy

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CINCINNATI, OH (FOX19) -

PG Sittenfeld pulled a surprising one-eighty Tuesday, announcing the following regarding the controversial streetcar project:

"Given where things are, it feels neither prudent nor fiscally responsible to scrap the whole thing."

His change of heart means that next week Mayor-elect John Cranley goes to city council with one fewer vote in his pocket, and there are others likely to vote against him including Chris Seelbach.

"At this point it makes zero sense to pause or cancel this project," says Seelbach.

Wendell Young says the decision to derail the project isn't just about the money, it's about image.

"Our reputation becomes the city that will wine you and dine you and make a proposal and then leave you at the altar," says Young.

Project manager John Deatrick, who recently delivered to city council steep cost estimates for stopping the project wants the streetcar to become a reality.

"I'd prefer to finish the project. I'd prefer to get it done on time within budget," explains Deatrick.

Economists have a name for what streetcar supporters may be experiencing; it's known as the 'Sunk Cost Fallacy.' Simply put, it's the tendency people have to assume that if they've already spent time or resources on something, they are emotionally driven to see it through to the end, regardless of future costs - an argument Cranley's made since the mayoral campaign. Cranley believes that in the long run the streetcar will cost Cincinnati millions—millions better spent on other things.

"It's over a hundred million dollars in debt," he says. "When our bond rating has been downgraded, then it adds a budget deficit of four million dollars a year when we already have a budget deficit and comes at the expense of cops and firefighters."

Cranley's also quick to point out that he was elected mayor on a pledge to stop the streetcar and has every intention of doing just that.

Sources:

http://www.fpanet.org/ToolsResources/ArticlesBooksChecklists/Articles/FinancialPlanning/TheFallacyofSunkCosts/

http://www.lifehack.org/articles/communication/how-the-sunk-cost-fallacy-makes-you-act-stupid.html

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/15/house-republicans-are-falling-for-the-sunk-cost-fallacy/

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