Wednesday, September 12, 2007

An Irrational Escalation of Commitment

Via Daring Fireball, an instructive economic analogy for the invasion and occupation of Iraq: Lessons on the surge from economics 101.
Theoretically, there is no stable outcome once the dynamic gets going. The only clear limit is the exhaustion of one of the player's total funds. In the classroom, the auction generally ends with the grudging decision of one player to "irrationally" accept the larger loss and get out of the terrible spiral. Economists call the dollar auction pattern an irrational escalation of commitment. We might also call it the war in Iraq.


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