Jeffrey Ely

Department of Economics

Northwestern University

2211 Campus Dr Evanston, IL 60208

Curriculum Vitae

©2019 by Jeffrey Ely.

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Kellogg Podcast on Sunk Costs

Sandeep Baliga and I discuss our research on the evolutionary origins of the sunk cost fallacy.  It’s an example of a kludge, this particular one being a workaround for our limited memory capacity.

There is a general theme here which I tried to capture with this bit:


We go around in our lives and we collect information about what we should do, what we should believe and really all that matters after we collect that information is the beliefs that we derive from them and its hard to keep track of all the things we learn in our lives and most of them are irrelevant once we have accounted for them in our beliefs, the particular pieces of information we can forget as long as we remember what beliefs we should have.  And so a lot of times what we are left with after this is done are beliefs that we feel very strongly about and someone comes and interrogates us about what’s the basis of our beliefs and we can’t really explain it and we probably can’t convince them and they say, well you have these irrational beliefs.  But its really just an optimization that we’re doing, collecting information, forming our beliefs and then saving our precious memory by discarding all of the details.

I really wish I could formalize this idea.  Anyway, here is a link to an article about the research and the podcast.