“In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered.” A succinct description from Wikipedia.
History is full of investments that were kept going longer than they should have due to the costs already incurred.
Concorde is one. At a certain point, the British and French governments realized that they would never recoup their investments in commercial supersonic transport. Politics and the prospect of elected officials having mud on their collective face for financing the project with taxpayer money prevented those governments from abandoning the project. While Concorde eventually made money for British Airways and Air France, the taxpayers never recouped their investment and the benefits of Concorde were enjoyed exclusively by the wealthy. The environmental impact included egregious noise pollution and ozone-depletion. Concorde flights were abandoned after three decades. While there are very tentative hopes for a return to commercial supersonic transport, they are unlikely to come to fruition anytime soon – and if they do, will doubtless be enjoyed only by the wealthy.
The United States Navy’s littoral combat ship program is another example. As someone from a Navy family, I’ve followed developments closely. But anyone who even casually follows military news knows the problems with the Freedom class and Independence class littoral ships: Engine maintenance problems, a transmission design defect, hull cracks, corrosion problems, very limited life expectancy – about 10 years, which is not a good return on investment. After the first two ships of the Independence class were built and tested, the Navy issued a report that the ships were not performing as expected and that further construction of this class should be abandoned. After all, as Franklin Roosevelt said “It is common sense to take a method and try it. If it fails, admit it frankly and try another.” The ships are not working - cut the Navy's losses and move on. Congress and Senate overrode the Navy’s recommendations and the authors of the report saw their Naval careers ruined. 16 Freedom class and 19 Independence class ships have been built or are in process. The politicians who were pushing for more Freedom and Independence class ships to be built had received large contributions from, you guessed it, the defense contractors who were building the ships. Meanwhile, many who’ve had to serve on these ships have quipped that the LCR in the registry number stands for “Little Crappy Ship.” I personally heard a midshipman utter that phrase when I recently visited one such ship.
Then there are the investments one makes in loved ones that, for whatever reason, don’t yield a return.
Life is a continuous series of investments.
Investments can be financial, physical, or emotional.
Our lives start, hopefully, with responsible parents who invest in us by ensuring we are healthy: that we receive good nutrition and medical care, including vaccinations.
As we mature we begin to invest in ourselves: by educating ourselves, eating healthy, getting exercise, avoiding unhealthy vices.
As adults we invest financially: in our homes, by starting a business, by purchasing stocks.
We invest in loved ones by helping them financially or emotionally - often believing in them when few others do.
Helping empower loved ones so they can make the most of themselves is an investment. Providing assistance without expecting them to try and improve their own lot is charity.
Some investments yield positive outcomes, some do not. There is no reward without risk.
As with financial investments, there comes a time to assess one’s investments in a loved one. It can be painful to admit that the investment is not yielding positive results. But when one accepts this, we must face our own disappointment, and decide whether to keep investing – hoping things will turn around and that it will have been worth the “sunk cost” – or to cut our emotional and/or financial losses, and move on.
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