Psychology of failed Iron Range project’s ‘sunk cost’

The agreement by the IRRRB to extend the loan, reduce the payments and otherwise throw a life line to Excelsior Energy last week escaped with relatively little outrage. Even my own response to this topic I’ve written hundreds of posts about was rather muted. It got a local story in the Grand Rapids and Hibbing papers, but it earned nary a whisper in the Mesabi Daily News, the paper that threw itself lock, stock and barrel behind the project for many years.

Afterward, longtime reader and frequent comment writer “CJH” sent me this study, entitled “The Psychology of Sunk Cost” by Hal R. Arkes and Catherine Blumer of Ohio University.

The study isn’t about energy policy, but rather explores human tendencies when we’ve made monetary or time investments in projects. In short, we behave irrationally when we worry about losing money and time already spent. And really, you don’t need a study to see that this is the precise mindset of the IRRRB and the majority of the board members who voted “yes” on the Excelsior loan restructure.

We don’t want to walk away from a lost investment, but our behavior here does not match the advice we’d give some other region that gave away $9.5 million to a different bad idea. By all means, read this study and tell me different.

Speak Your Mind


This site uses Akismet to reduce spam. Learn how your comment data is processed.