Wednesday, October 04, 2006

Snake eyes means nothing to them

I have been thinking about the relationship between politics and sports gambling for several years. Heck, let us throw in the world’s biggest casino, the stock market, when talking about the relationship.

Before the Iraq invasion, I asked myself whether I would bet all my retirement money on an easy, quick, and cheap conclusion to the conflict. I quickly determined that no matter what the odds were I would not bet on it. Expert assessments of the pitfalls and costs were already public information. These estimates did not make the bet an attractive proposition.

Everybody from Joe Average to the President has spent a lot of time backtracking since the invasion claiming he did not know all the facts at the time. Maybe they did not or maybe they did not care to listen. One very good reason for this is that they had no personal downside risk. If you do not have to fight in a war, pay for it, or account for bad outcomes, why not roll the dice just to see what comes up? Rolling snake eyes is not that big a deal.

All the carnage to date in Iraq is a sunk cost. The astute businessperson knows that you do not include sunk costs in the evaluation of the future costs and benefits of a project. One of the things you do include is a risk assessment of the project going forward. Yet here we are in 2006 and Joe Average and the President still do not want to deal with the risk. The reason has not changed. They still have no downside risk.

I cannot help but wonder how they would bet if they did.


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