Driven to Drive: How "Sunk Costs" Can Sink Our Traffic Plans

Economists like to talk about "rational actors." But, in reality, it's hard to find many people who behave truly rationally. Let alone many actors.

It's just not a part that's easy to play. We're impulsive, irrational, and awfully prone to toss good money after bad. One of the prime examples of this is "sunk cost bias," in which people or entities can't force themselves to write off a past poor and/or expensive investment, and continue — irrationally — to allow an unrecoverable cost to affect future decisions. In San Francisco, you could call this the "Barry Zito bias."

But local examples extend well beyond sports (though management feeling pressure to play high-priced but underperforming players is a good example). Here in San Francisco, city politicos would prefer residents to buy lots of expensive things and drive less. But a recent study out of UC Berkeley's Haas School of Business indicates these goals may be at cross-purposes.

A paper co-authored by Cal professor Teck-Hua Ho examined the driving habits of Singapore residents. Granted, Singapore isn't San Francisco; this city may have banned Happy Meal toys, but we haven't quite gotten around to criminalizing chewing gum or — no joke — failing to flush the toilet after use.

Both locales are small, congested, and expensive, however. And, Ho's analysis demonstrated that, even with the same model of car, motorists felt compelled to drive more if they'd paid more. For every additional 20 percent in unrecoverable, sunk costs invested in a vehicle, motorists drove it 10 percent more. The mindset, essentially, is "I paid through the nose for this damn car, so I'm not gonna take the bus. I'm getting my money's worth."

That is, of course, irrational. But whoever said the human race was rational? Ho's paper measures and charts our irrationality with eerie precision.

Back in San Francisco and its environs, the impulses revealed by this study could play out poorly on our streets. Green-friendly vehicles like the Prius and the Tesla remain status symbols. But, if their price were to drop enough that regular folks could afford them — would people feel the need to drive them? If motorists aren't compelled to take out their gas-sipping cars, a larger portion of the traffic would be composed of folks driven to "get their money's worth" out of expensive SUVs and other environmentally undesirable fare.

There's a reason economics is referred to as "the dismal science." When San Francisco traffic is involved, it's even more so.

 
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2 comments
mattharris4
mattharris4

Where do I get one of those pink mustaches?  I think it would look great on my minivan even if I have no intention of picking up glorified hitchhikers. :)

zubzabzub
zubzabzub

Add to that when you can drive your personal car and make money. Thanks a lot, pink mustached people, you are clogging our streets!

 
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