Sunk costs, water over the dam, and other liquid parables

Alexander J. Field

pp. 123-136

in: Ken Dennis (ed), Rationality in economics, Berlin, Springer, 1998

Abstract

One of the most remarkable lessons learned by students of economics is the power of reason and economic logic to improve decision making, and one of the most powerful lessons imparted by this frame of analysis is that bygones should be bygones, and that decisions from this day forward should be made independently of prior successes or failures, mistaken or good judgements. The intuition has many popular expressions, some directly reflecting the sentiment, others closely related to it. Examples include "That's water over the dam", "Let bygones be bygones' or "Don't cry over spilt milk". The force of the insight, and the need for popular aphorisms to reinforce it, is partly because it runs so much against what appear to be deeply ingrained human instincts. The purpose of this essay is to reflect on this apparent paradox, to dwell on what might be the evolutionary survival value of our instincts, and to consider how broad is the range of decision contexts in which the imperative to make future decisions independently of what has transpired in the past is truly applicable.