Jon R. Miller: An economist’s New Year’s resolution

After congratulating my wife and me on one of our 20-something wedding anniversaries, a bachelor friend noted that he had been married almost that long, only to three different women. Wife No. 1, the mother of his children, had lasted the longest, nearly 15 years. With Wife No. 2, whom he affectionately called the Black Widow, things were rocky after about six months.

“Marriage is like golf,” he said, “Everyone deserves a mulligan.”

Wife No. 3 was the costliest, as their six-year marriage corresponded to a period of substantial growth in his business, half of which he lost in the divorce.

“It’s funny,” he said, “Even though I just bought my fourth weed sprayer, it really doesn’t bother me. I’ve given up all hope of a brighter past.” I realized right then that our friend, a professional engineer, was an economist in his heart of hearts. He had clearly stated the economist’s new year’s resolution, to look forward not back. Don’t allow previous bad decisions to lead us to more bad decisions in the future. Economists call this ignoring sunk cost.

Economics is about choice, and we have no choice about the past. All past opportunities foregone are sunk cost. We can’t do anything about them, so we ought to learn what we can from our mistakes, then forget them and move on.

We struggle with this as humans. When an aging car breaks down again, we regret what we spent on a new transmission and then throw good money after bad trying to justify that past expenditure, rather than asking whether we should make additional repairs given the new circumstances. We drive through dangerous blizzards to ski areas and concerts because we want to recoup the sunk cost of previously purchased non-refundable tickets, rather than asking whether the risk is worth it, even if we don’t have to pay. We resist actions to cut our losses.

Baseball legend Satchel Paige once said, “Don’t look back. Something might be gaining on you.” Paige was only partially right. It’s OK to look back. If something has gained on you, maybe run a little faster, but don’t worry about the distance lost in the past. Just don’t let it catch you now! All benefits and costs lie in the future. In a new year, we need to give up hope of a brighter past.

Miller is professor emeritus of Economics at the University of Idaho. This article is adapted from his recent book, “Economics for Normal People: An Economist’s Memoir.”