At absolutely no cost, WC offers Senator John Coghill (R, Don’t Blame WC) an object lesson in the Sunk Cost Fallacy.
First, let’s all refresh our recollections on the elements of the Sunk Cost Fallacy. It happens when people justify increased investment in a decision, based on the cumulative prior investment, despite new evidence suggesting that the cost, going forward, of continuing the decision outweighs the expected benefit. In psychology, it’s called Commitment Bias. Microeconomics teaches that an earlier decision to spend money (a sunk cost) should not influence a decision to spend more money for the same purpose. 1
Senator Coghill is a primary supporter of the lawsuit against Governor Walker, accusing the Governor of usurping the Alaska Legislature’s prerogatives in the Governor’s implementation of expanded Medicaid. It was a stupid lawsuit in the first place. It’s no surprise that the Legislative Council hired ALEC-favorite, Virginia-based Bancroft PLLC as its lawyer in its latest tilting at windmills. Bancroft has lost a spectacular number of conservative cases, including all of its U.S. Supreme Court challenges to Obama’s health law.2
When the Legislative Council sued the Governor, it tried to get an injunction barring the Governor from implementing Medicaid expansion. Superior Court Judge Frank Pfiffner denied the request. The Legislative Council appealed to the Alaska Supreme Court. And the state supreme court affirmed Judge Pfiffner, again denying an injunction. So, on September 1, Medicaid expansion went ahead.
So, for just a couple of hundred thousand dollars, the Legislative Council and Bancroft PLLC have managed to lose twice. Those are sunk costs. These two losses also carry a very strong message that the Alaska courts aren’t buying what the Legislative Council and Bancroft PLLC is peddling. The lawsuit is, in former Attorney General (and WC hero) John Havelock’s kind phrase, “ill-considered.”
The Legislative Council met again on September 2 behind closed doors. And, apparently, decided to spend still more money suing the Governor. Technically, the Legislative Council’s lawsuit isn’t dead; merely mortally wounded. Denial of an injunction doesn’t end the lawsuit. It is, however, a very strong signal. But the Legislative Council apparently decided that, having spent a couple hundred thousand, it might as well spend a couple hundred thousand more, no matter how bad the odds. A classic instance of the sunk cost fallacy.
WC will try to put this in terms Senator Coghill can understand. Imagine you are playing five card stud. You had four hearts, ace-high. You drew another card hoping for the flush, even though you could see a lot of hearts out on the table. You put a lot of money in the pot to see one last card, and that card was a club. You have a busted flush. And then you continued to bet. Because you had spent all that money already.3
That’s what Senator Coghill and the Legislative Council are doing. Playing the legal equivalent of very bad poker with our money. It doesn’t matter whether it is dislike for Governor Walker, opposition to the Affordable Care Act, or even the pretend-excuse of the Governor usurping Legislative authority. When the odds are terrible, you quit wasting money. You don’t allow your emotional commitment to induce more bad decisions.
In the next legislative session, when Senator Coghill is busy with his meat cleaver, cutting jobs and programs in a wholly futile effort to balance the state budget, someone needs to remind him of the hundreds of thousands of dollars he helped waste because of his ignorance of microeconomics.4
- Some kinds of cons depend on commitment bias to work. Like the Nigerian 419 Scam, where victims continue to spend money for alleged business deals, although the fraudulent character of the deal appears obvious to uninvolved persons. ↩
- Lawyer joke. Uninvolved lawyer: “I could have lost that lawsuit for half as much money.” Involved lawyer: “Yeah, but it was the Koch Brothers paying.” ↩
- It’s actually worse than the money thrown away on Bancroft PLLC. We’re paying the Attorney General’s Office to defend the Governor. Alaska’s precious oil revenues are funding both sides of this idiot lawsuit. ↩
- The same economics lesson is offered, gratis, to the other members of the majority coalition of the Legislature. WC names Senator Coghill only because, from time to time, and unlike his colleagues, he shows signs of being educable. Except on issues involving abortion. ↩