If you don’t know what a “sunk cost” is, Wikipedia describes it as follows:
In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. Both retrospective and prospective costs may be either fixed (that is, they are not dependent on the volume of economic activity, however measured) or variable (dependent on volume).
In traditional microeconomic theory, only prospective (future) costs are relevant to an investment decision. Traditional economics proposes that an economic actor not let sunk costs influence one’s decisions, because doing so would not be rationally assessing a decision exclusively on its own merits. The decision-maker may make rational decisions according to their own incentives; these incentives may dictate different decisions than would be dictated by efficiency or profitability, and this is considered an incentive problem and distinct from a sunk cost problem.
Evidence from behavioral economics suggests this theory fails to predict real-world behavior. Sunk costs greatly affect actors’ decisions, because many humans are loss-averse and thus normally act irrationally when making economic decisions.
The BART Oakland-Airport Connector project appears to be a textbook case of sunk cost fallacy, where humans (i.e. the BART Board) is making an irrational decision based on money already lost:
“It doesn’t look like we are going to be putting the brakes on this project,” said Robert Raburn, a BART board member who would clearly love to do just that. Raburn, whose district includes the area around Oakland International Airport, asked interim GM Sherwood Wakeman to estimate how much it would cost to kill the proposed $484 million connector.
The answer: The $95 million that BART has already spent on the planned 3.5-mile line from the Coliseum Station to the airport would be money down the drain. Paying off contractors who have already been hired would cost another $30 million to $150 million. The project’s backers say it will create construction jobs and raise the Oakland airport’s regional profile. Some transit activists think the money would be better spent on increasing bus service in the area or fixing up BART itself. “We still don’t have the local money for buying new cars, which is a top priority with everyone,” Raburn said.
The line’s biggest backer was former BART Director Carole Ward Allen – whom Raburn unseated in the November election.
“It would be a huge waste of public funds to stop at this point,” said BART Director Joel Keller, whose district stretches across northern Contra Costa County.
BART estimates the OAC will require some $10/trip operating subsidy — more than 5 times required for a BRT. And the BRT would provide faster door-door travel time, meaning it would likely generate higher ridership. The fact that $100 million has already been spent is irrelevant here.