Sunk Costs are Sunk

One of the cornerstones of economic analysis is what we call "marginal thinking."  Marginal thinking simply means that we look forward one step from wherever we happen to be, compare costs and benefits of actions that we're considering, and take those actions whose benefits outweigh their costs. It takes some calculus to prove, but making marginal decisions in this way tends to produce the highest level of available well-being for those that practice it. 


Despite the fact that we do marginal analysis every day, it's still easy to fall into the trap of chasing sunk costs.  Sunk costs are costs that have already been incurred;  the saddest thing about sunk costs is that no matter how badly you want to, or how hard you try, you cannot get them back.  And making decisions based on what has already occurred violates the forward-looking principles of marginal analysis.


Consider, for example, the moviegoer who plunks down $15 to sit through what might possibly be the worst movie of all time: "Dude, Where's My Car?"  Within minutes, the moviegoer knows the movie will be terrible, but sits through the rest of the movie because, "I've already bought the ticket."  Or the college senior who discovers that she hates French literature and never wants to speak another word of French, but continues taking courses in the major because, "I've already got 20 credit hours."  Both of these people are choosing an action based not on what is to come, but what has gone before.  The moviegoer should be asking, "What else can I be doing with the next two hours that is better than watching this stinkpot of a film?" The student should be asking, "What field of study can I choose that I will enjoy more than this stinkpot of a major?"


I recently found myself guilty of chasing sunk costs when I spent the weekend with a friend of 32 years.  At the end of the weekend I realized that I really don't like him, have not liked him for many years, and that I spend time with him primarily because we have a shared history. My friend is a human version of "Dude, Where's My Car," and it's time I realize that this is one movie that's not going to get better if I wait.  Every minute I spend indulging my once-friend is time away from more valuable uses...and so I'm walking out of the theater.

Assessment

One thing that universities need to do is answer the question, "Are our students learning what we want them to?" The process by which that answer is found is called "assessment," and the answers are supposed to inform us of where we need to make changes in our programming. I understand the goals of assessment, but I often get frustrated by the language and culture of assessment, and I often lament that for many, the process is more about the data than it is about using the data to make positive changes to programs. Furthermore, assessment involves lots of data gathering and analysis, both of which tend to happen at the busiest times of the semester. Isn't it serendipitous, then, that I am the semi-official department assessment coordinator?

Recently one of my colleagues who has been doing mostly administrative work decided to return to the department full time.  Last night, Judy emailed me and asked if she could take over as department assessment coordinator.  Here was my response, lifted wholesale from a source much more talented than I:

“Why, it’s you, Judy! I warn’t noticing.”

“Say - I’m going in a -swimming, I am. Don’t you wish you could? But of course you’d druther do assessment - wouldn’t you? Course you would!”

Al contemplated the woman a bit, and said:

“What do you call work?”

“Why, ain’t that work?”

Al resumed his assessing, and answered carelessly:

“Well, maybe it is, and maybe it ain’t. All I know it suits Alan Grant.”

“Oh, come now, you don’t mean to let on that you like it?”

The magic assessment pen continued to move.

“Like it? Well, I don’t see why I oughtn’t to like it. Does a guy get a chance to assess learning outcomes every day?”

That put the thing in a new light. Judy stopped nibbling her apple. Al swept his pen daintily back and forth - leaned back to note the effect - added a touch here and there - criticized the effect again - Judy watching every move and getting more and more interested, more and more absorbed. Presently she said:

“Say, Al, let me assess a little.”

Al considered, was about to consent; but he altered his mind:

“No-no-I reckon it wouldn’t hardly do, Judy. You see, Dean Flaherty’s awful particular about this summative assessment - right here in the public eye, you know - and if it was just low-level formative assessment, I wouldn’t mind, and he wouldn’t. Yes, he’s awful particular about summative assessment; it’s got to be done very careful; I recon there ain’t one person in a thousand, maybe two thousand, that can do it the way it’s got to be done.”

“No-is that so? Oh, come now - lemme try. Only just a little - I’d let you, if you was me, Al.”

“Judy, I’d like to, honest injun; but Dean Flaherty - well, Gary wanted to do it, but he wouldn’t let him; Kevin wanted to do it, and he wouldn’t let Kevin. Now, don’t you see how I’ fixed? If you was to tackle assessment and anything was to happen to it --”

“Oh, shucks, I’ll be just as careful. Now lemme try. Say - I’ll give you the core of my apple.”

“Well, here - No, Judy, no you don’t. I’m afeared --”

“I’ll give you all of it!”

Al gave up the assessment pen with reluctance in his face, but alacrity in his heart. And while Judy worked and sweated over the assessment, the retired department assessment coordinator sat on a barrel in the shade close by, dangled his legs, munched his apple, and planned the slaughter of more innocents.

Perfection

I'm an academic economist by day, which means that my job is to help students develop a working understanding of economics.  It turns out that economics is hard to learn for some--economists think in strange ways about problems, and we use graphical tools that are abstract and hard to learn.  Students, even the best students, rarely walk out of an econ course feeling as if they have mastered the material.  Students might be encouraged to learn that I've been studying economics for 25 years, and I don't feel as if I've mastered the material either.

But rather than being encouraged, some might feel that because they're learning their economics from less than a master, they are being cheated out of what they paid for.  I might be tempted to feel guilty about that.  But at night, I hang up my economist hat and put on a woodworking hat.  I love working with wood, reading about working with wood, and thinking about wood. There are a few woodworking giants whose names pop up everyhere woodworkers gather--among them are Roy Underhill, James Krenov, and Sam Maloof.

Roy Underhill hosts the longest-running woodworking show on television, "The Woodwright's Shop."  He was for many years the housewright in Colonial Williamsburg, works only with hand tools, and is known by his devotees as "St. Roy," because he's cut himself so many times on the air (his shows are always shot in one continuous take) that it's a miracle he's alive.  He is charming and charismatic and perhaps the most beloved soul in woodworking.

James Krenov, recently deceased, made his name by crafting high-end cabinetry.  Later, he opened the most famous woodworking school in America, where he perfected a type of handmade wooden plane that came to be known worldwide as a Krenov-style plane.

Sam Maloof made chairs--chairs unlike any that had ever been seen before, with traditional bones and natural and contemporary lines.  His work has spawned a slew of imitators who produce knockoffs that are referred to only as "Maloof-style chairs."

Here's why I mention these icons:  they are not perfect.  Roy Underhill's books are full of pictures of tables and boxes and chests that he's literally crafted out of trees--this is pretty amazing to me.  And yet, if you look at the pictures closely you'll often see torn and splintered wood, mis-cut pieces, and gappy joints.  James Krenov, crafter of some of the finest furniture in the world, chose as the cover of his "Cabinetmaker's Notebook" a photo of a jewelry box that clearly shows where he mis-marked his joints with a knife and had to strike a second line.  And Sam Maloof used *gasp* metal screws to hold his chairs together instead of more traditional wood-to-wood joinery.

Roy's boxes, James' cabinets, and Sam's chairs all do what they are supposed to, and all are probably far finer than I will ever produce.  Yet these three giants are not ashamed to display the errors and imperfections in their work. They know that, master craftsmen though they may be, they will never totally master the wood they use.

Students of economics, take heart.  You might not master economics, but that doesn't mean that you can't be good enough at it to produce a useful, and even beautiful, end product.