Economical Lockdown and Sunk cost fallacy
Did you ever spend your money/time on a depreciating asset? Maybe you bought a used car and it costs you more every month than to pay for a new car? Or maybe you are in a long term relationship with someone and that is not going well. Or you bought oil stock and those stocks are 100 or even 200 percent down. What would you do in these scenarios? These are some hard questions and there are no easy answers. Or maybe there is an easy answer.
If a car costs you a fortune, sell it. Does a relationship suck? End it. And your oil stock, they have no worth so why not sell them, take whatever left, and invest more wisely now. But we don’t do these things, we keep them, pay more money or invest more time because we already spent so much. Now it’s worth the pain! We assume. This is a sunk cost fallacy, a very common bias because our decisions, how much we can think are rational, are mostly emotional and we tend to spend more on things we have been doing for a longer time than simply to quit. Another reason is that the past affects our present decision-making processes.
Now come to the present day, 1st week of May 2020, the world economy is at a halt, businesses are closed, and people are stuck at home. World wide lockdown actually started in early March and after almost 2 months, COVID-19 is still trying to spread as quickly as possible. But both developed and underdeveloped nations are choking with the lockdown and it’s getting worse day by day. Cases are 10–50 times more now in May than March and everyone is asking for how long this will continue?
Ladies and Gentlemen, we are facing the real world life crisis of the sunk cost fallacy. Should we keep our economy close for 2–3 more months and kill hundreds of thousands of more businesses around the world? Starve to death people in the undeveloped world where daily wagers earn less than $2/day? They have no one to back up. Their governments are too weak to handle this economical stress. Are we making the lockdown worse than the disease? These are some valid questions and it’s not making you insensitive to ask these questions because either way, we all have skin in this game. No one is going to Mars to save themselves from this virus.
People like Elon Musk and Donald J Trump are calling to end the lockdown as soon as possible. Why are they calling these things? Maybe because of sunk cost fallacy, they might have known this bias inside all of us and they know if we eventually open the economy after a few months and we know how fast it spread, we might see the second wave more deadly than the first because of the absence of herd immunity. And it’s a fact that COVID-19 is more deadly when combined with the seasonal flu ( which is a real threat in coming September onwards).
So, governments and people have to make some hard decisions here, but we better have this bias out of our head, either to decide to keep the lockdown? Or end soon! We have to minimize the overall risk and save more lives, from both economic meltdown and the disease.