AN ARGUMENT THAT SOMETIMES IT’S RATIONAL TO BE INFLUENCED BY SUNK COSTS.

AN ARGUMENT THAT SOMETIMES IT’S RATIONAL TO BE INFLUENCED BY SUNK COSTS. The Baliga and Ely article struck me because it presents an interesting argument that there can be circumstances where you should be influenced by sunk costs. The argument applies to complicated decisions, especially decisions in which a large number of people participated. The decision makers may not recall all of their thought processes, but they may have confidence in the process and rationally conclude that their past action should enter into future decisions. Baliga and Ely give the example of Lou Gerstner replacing John Akers as head of IBM in 1993. Despite the criticisms of Akers which led to Gerstner taking power, Gerstner followed through on much of the strategic plan he inherited, thereby giving weight to the previous thinking which was not completely known to Gerstner.