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Thread: The Sunk Cost of Mark Sanchez

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    Arrow The Sunk Cost of Mark Sanchez

    THE FINANCIAL PAGE
    THAT SUNK-COST FEELING
    by James Surowiecki
    JANUARY 21, 2013

    After a farcical 2012 season, in which the New York Jets invented ever new ways to lose games (thus the “butt fumble”), the team’s general manager, offensive co÷rdinator, and quarterback coach are all gone. Yet Mark Sanchez, the starting quarterback, remains.

    He has played poorly for two seasons in a row, and has now thrown more interceptions in his career than touchdowns. But the Jets have invested an enormous amount of energy and money in Sanchez, and, assuming that no one will trade for him, they are contracted to pay him $8.25 million next year, whether he plays or not. So figuring out what to do with Sanchez will be trickier than you might think.

    The Jets have stumbled into a classic economic dilemma, known as the sunk-cost effect. In a purely rational world, Sanchez’s guaranteed salary would be irrelevant to the decision of whether or not to start him (since the Jets have to pay it either way).

    But in the real world sunk costs are hard to ignore. Hal Arkes, a psychologist at Ohio State University who has spent much of his career studying the subject, explains, “Abandoning a project that you’ve invested a lot in feels like you’ve wasted everything, and waste is something we’re told to avoid.”

    This means that we often end up sticking with something when we’d be better off cutting our losses—sitting through a bad movie, say, just because we’ve paid for the ticket. In business and government, the effect pushes people to throw good money after bad. The quintessential case of this is the Concorde. There was never a convincing business case for the supersonic airliner, and there were numerous attempts to kill it. But those attempts all failed, in large part because of the billions that had already been spent.

    The sunk-cost dilemma isn’t just about waste. It’s also about reputation—after all, the future is uncertain, and if you keep a foundering project alive there’s always a chance that it will right itself. “Giving up on a project, though, means that somebody has to admit that he shouldn’t have done it in the first place,” Arkes says.

    “And there are lots of executives who would rather be tortured than admit that they’re wrong.” If you’re faced with this problem, it’s tempting to look to those times when staying the course has worked out.

    After all, plenty of N.F.L. teams have eventually been rewarded for sticking with struggling quarterbacks—most notably, the Giants with Eli Manning. Andrew Brandt, a former N.F.L. executive who’s now a business analyst for ESPN NFL, told me, “When you stray from decisions from year to year, that’s when you get in trouble, unless you have an option so attractive that it’s worth giving up on your current plan.”

    The problem is that patience is often simply self-justification. The organizational behaviorist Barry Staw, in a 1995 study of the N.B.A., showed that high draft picks consistently got more playing time than lower draft picks, regardless of whether their performance justified it. When executives think they’re being patient, they’re often just being obstinate.

    The most intriguing aspect of sunk costs, as Arkes and others have documented, is that greater investment in a project increases people’s belief that it will succeed. That may help explain what happened last March, when the Jets gave Sanchez a contract extension that guaranteed his salary through 2013. Since Sanchez was already signed for two more years, and was coming off a mediocre season, the extension seemed peculiar to outside observers. But the Jets argued, and doubtless believed, that it was a smart way of locking up a young player.

    It was a classic case of what psychologists call the “escalation of commitment.” Since the Jets had bet big on Sanchez, it seemed reasonable to place an even bigger bet on his future.


    So how do you counter this problem? “Taking the original decision-maker out of the picture and letting a fresh pair of eyes look at the pros and cons can help,” Arkes says. He points to a Staw study of a bank that found that loan officers were reluctant to acknowledge that loans they’d made had gone bad, whereas new executives were far more likely to take the loss and move on.

    Whoever becomes the Jets’ new general manager will have no personal or reputational investment in Sanchez, which should make it easier for him to be more objective, though he’ll still have to persuade the head coach and the owner. New York might also take comfort from the success of the Seattle Seahawks, who showed a remarkable indifference to sunk costs this year.

    Last spring, Seattle signed the quarterback Matt Flynn to a hefty free-agent contract, a chunk of which was guaranteed. But in training camp Flynn was outperformed by a new draftee, Russell Wilson.

    The Seahawks put Wilson in the starting lineup, Flynn got to throw only nine passes all year, and the team made it to the playoffs. This happened only because the Seahawks understood that Flynn’s salary was irrelevant. “I don’t want that to matter to me,” the head coach said of the investment. “You want the best guy at that time to play.”

    To be fair, the Jets face a harder problem than the Seahawks did: the talent pool of available quarterbacks is small, and, because of the N.F.L. salary cap, they’ll likely have a limited amount of money for signing an alternative to Sanchez.

    “Unless the Jets get lucky in the draft or bring in a veteran who can remake his career, Sanchez could well be the best option,” Brandt told me. Even so, while the Jets figure out whether Sanchez is the best option, they need to forget—forget how much they’ve paid him, how high he was drafted, and even the fact that the head coach has a tattoo of his wife wearing Sanchez’s jersey. All those costs are sunk. Worrying about them will only insure that the Jets are, too. ♦


    http://www.newyorker.com/talk/financ...printable=true
    Last edited by Traitor Jay & the Woodies; 01-18-2013 at 10:44 AM.

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    You'd think that NFL GMs would be talented poker players with all the high stakes negotiations going on. But, based on the Sanchez debacle, you could see Tanny refusing to toss away a hand simply because he bet big pre-flop.

    He also thought he had pot odds with Sanchez. The extension he tossed at Sanchez would have been fine if Sanchez could reasonably the starter for at least 2012 and 2013. Of course, we all saw where that went.

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    Human Psychology...it's hard to change and can be a dangerous thing.

    Similar with Tebow fans....when the belief outweighs the reality.

    Happens with stocks all the time. People don't want to sell their losers because it validates that they made a bad investment, so they hang on and hang on...sometimes until bankruptcy.

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    It isn't Sanchez's fault. He needs all-pro receivers, O-Line, TEs and RBs. Give him all of that and he'll be fine.

    Just ask SAR. Listen to him.

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    Quote Originally Posted by crasherino View Post
    You'd think that NFL GMs would be talented poker players with all the high stakes negotiations going on. But, based on the Sanchez debacle, you could see Tanny refusing to toss away a hand simply because he bet big pre-flop.

    He also thought he had pot odds with Sanchez. The extension he tossed at Sanchez would have been fine if Sanchez could reasonably the starter for at least 2012 and 2013. Of course, we all saw where that went.
    Yes, and he screwed himself by getting Tebow. A double mistake that affected both decisions.

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    SAR

    Quote Originally Posted by Braumeister View Post
    It isn't Sanchez's fault. He needs all-pro receivers, O-Line, TEs and RBs. Give him all of that and he'll be fine.

    Just ask SAR. Listen to him.
    SAR is lobbying for O lineman with smaller butts, and a fresh tube of stick-em be handed to Sanchez before every game

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    Quote Originally Posted by jetstream23 View Post
    Human Psychology...it's hard to change and can be a dangerous thing.

    Similar with Tebow fans....when the belief outweighs the reality.

    Happens with stocks all the time. People don't want to sell their losers because it validates that they made a bad investment, so they hang on and hang on...sometimes until bankruptcy.

    Also similar with Jet fans who say that Rex passing over Tebow for McElroy is proof that Tebow sucks. They completely ignore some of the very issues brought up in this article.

    It may be that Tebow sucks and that even McElroy is better. That said, I certainly wouldn't take Rex's word for it or base any conclusions off of Rex's actions this year.

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    Thanks for posting. Nice to see a reputable publication instead of the usual crap that gets block quoted on here.

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    Very insightful article. Makes all kinds of sense. Interesting to hear how the Seahawks handled the "Sunk Cost" situation - they made the playoffs! Maybe the Seahawk's guy, Idjik, who may have been made an offer for the GM job, is the right choice.

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    Quote Originally Posted by jetstream23 View Post
    Human Psychology...it's hard to change and can be a dangerous thing.

    Similar with Tebow fans....when the belief outweighs the reality.

    Happens with stocks all the time. People don't want to sell their losers because it validates that they made a bad investment, so they hang on and hang on...sometimes until bankruptcy.
    Absolutely.....your 1st loss is your best loss. Punt and move on.

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    Apparently, the rest of the league is not impressed with Tannenbaum's psychology. No one is knocking on his door.

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    Interestingly, the Jets had no issue with the the sunk-cost dynamic when it came to taking a loss on Drew Stanton to bring in Tim Tebow.

    That's what is so baffling about the Tebow situation. It more than just a trade. They *really* wanted him and were willing to take a compounded loss to get him.

    What a mess.

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    Quote Originally Posted by Traitor Jay & the Woodies View Post
    Interestingly, the Jets had no issue with the the sunk-cost dynamic when it came to taking a loss on Drew Stanton to bring in Tim Tebow.

    That's what is so baffling about the Tebow situation. It more than just a trade. They *really* wanted him and were willing to take a compounded loss to get him.

    What a mess.
    The new GM will have no interest in Sanchez as the starter, especially if it's the guy from Seattle (who even the article pointed out were indifferent to sunk costs at the QB situation). Take comfort in that.

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