Iraq and Loss Aversion

There was something sad yet slightly poignant about watching President Bush's speech on Iraq last night. I thought Andrew Sullivan got the atmospherics exactly right:

He seemed almost broken to me. His voice raspy, his eyes watery, his affect exhausted, his facial expression almost bewildered. I thought I would feel angry; but I found myself verging toward pity. The case was so weak, the argument so thin, the evidence for optimism so obviously strained that one wondered whom he thought he was persuading. And the way he framed his case was still divorced from the reality we see in front of our nose.

And there was the obvious cognitive bias underlying his carefully chosen words. Bush managed to get through a speech the featured numerous references to "bringing the troops home" without ever mentioning "withdrawal". He managed to make the ambiguous military successes of the surge sound like a victory. It was an optimistic gloss on a war that has turned us all into pessimists.

Watching Bush's speech, I couldn't stop thinking about loss aversion. I've written about this hard-wired heuristic before, but it's a simple phenomenon. First identified by Kahneman and Tversky in the late 1970's, loss aversion is best illustrated with a bet. When offered a gamble on the toss of a coin in which they might lose $20, most people demand a payoff of at least $40 if they win. (Most people would also refuse a bet in which they have an 85 percent chance of doubling their life savings and a 15 percent chance of losing it.) In other words, the pain of a loss is approximately twice as potent as the pleasure generated by a gain.

How does loss aversion apply to Bush's strategic decisions on the Iraq War? Kahneman has already ventured a guess:

People prefer to avoid a certain loss in favor of a potential loss, even if they risk losing significantly more. When things are going badly in a conflict, the aversion to cutting one's losses, often compounded by wishful thinking, is likely to dominate the calculus of the losing side. This brew of psychological factors tends to cause conflicts to endure long beyond the point where a reasonable observer would see the outcome as a near certainty. Many other factors pull in the same direction, notably the fact that for the leaders who have led their nation to the brink of defeat, the consequences of giving up will usually not be worse if the conflict is prolonged, even if they are worse for the citizens they lead.

U.S. policymakers faced this dilemma at many points in Vietnam and today in Iraq. To withdraw now is to accept a sure loss, and that option is deeply unattractive. The option of hanging on will therefore be relatively attractive, even if the chances of success are small and the cost of delaying failure is high.

Watching Bush last night, it was apparent that his aversion to losses - his unwillingness to even contemplate the possibility of defeat - was taking a heavy tool. He looked beaten down. Needless to say, the toll has been infinitely greater on our soldiers.

Tags

More like this

So Harry Reid announced that the Iraq war is lost, that there is no military solution to the crisis. He's being denounced, of course, by lots of right wing pundits, who are clamoring for his resignation. Regardless of whether or not you think the war is lost, I have trouble understanding how saying…
It sounds as if Bush has decided to "escalate" the war in Iraq by sending a "surge" of 20,000 more troops. I'm no military expert, but this certainly seems like a terrible idea, especially considering that the previous attempts to pacify Baghdad earlier this summer were so ineffective. So what is…
Daniel Kahneman and Johnathan Renshon, writing in Foreign Policy, put forward a fascinating thesis that because of the way human beings are organized psychologically we are prone to be more hawkish. Basically the thrust of their argument is that social and cognitive psychologists have documented…
Over the next few days, lots of people are going to be poring over their investment portfolio, trying to figure out which stocks to keep and which stocks to sell. Unfortunately, many of these investors will make the exact same mistake, causing them to lose vast sums of money over the long term.…