Why Losers Stay in Wars and the Stock Market

ShipwreckThis explains a lot. Via ScienceDaily:

Within hours this summer, 30 American troops died in a strike in Afghanistan and millions of American investors watched the Dow Jones Average shed an astonishing 634 points in one day. While it might be difficult to find similarities in the two events, social psychologists can detect a common theme: In each case, investments (money and human lives) were made, and those resources were painfully lost.

The ‘sunk-cost’ effect: Untold Americans experienced what is called the “sunk-cost” effect: Less a cognitive thought than an emotional one, this effect is the feeling that they are being wasteful if they terminate a prior commitment. Thus, they pondered: Stay the course and “waste not, want not”; or “cut and run.”

Such a piercing event as suffering the greatest loss of American troops in the nearly 10-year-old war might seem to serve as a catalyst for people to denounce the war and demand a way out.

But a psychologist at Washington University in St. Louis, in what is thought to be the first non-anecdotal demonstration of the “activation” of the sunk-cost effect, has tested subjects and found that highlighting casualties prior to a questionnaire on both the Iraq and Afghanistan wars actually swayed people’s pro-war attitudes rather than discouraged them …

Read more here.

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  • Okarin

    an eyebrow rising moment that the stock market part was discovered by social psychologists as their purpose is to study what traders call the herd

  • Okarin

    an eyebrow rising moment that the stock market part was discovered by social psychologists as their purpose is to study what traders call the herd

  • do not disturb

    if you invest too much into something sometimes its hard to get out even as the chips are falling…

  • do not disturb

    if you invest too much into something sometimes its hard to get out even as the chips are falling…

  • Nunzio X

    Interesting how “loss” is defined.

    1) A company makes a profit of $100 million one quarter. Next quarter, it makes a profit of $50 million. Both quarters there was profit, but people say the company “lost” $50 million the second quarter. HUH? No, you GAINED $50 million, in that your gain exceeded your expenses by that amount.

    2) You invest in the stock market, let’s say with a $100,000 initial investment. Over time this investment peaks at $250,000 but then the market drops and now you “only” have $200,000 and you say you “lost” $50,000. HUH? No, you’ve GAINED $100,000 in that your stocks are worth that much more than your initial investment.

    When it comes to “half empty, half full” thinking, money-grubbers are the world champions at “half empty.”

  • Nunzio X

    Interesting how “loss” is defined.

    1) A company makes a profit of $100 million one quarter. Next quarter, it makes a profit of $50 million. Both quarters there was profit, but people say the company “lost” $50 million the second quarter. HUH? No, you GAINED $50 million, in that your gain exceeded your expenses by that amount.

    2) You invest in the stock market, let’s say with a $100,000 initial investment. Over time this investment peaks at $250,000 but then the market drops and now you “only” have $200,000 and you say you “lost” $50,000. HUH? No, you’ve GAINED $100,000 in that your stocks are worth that much more than your initial investment.

    When it comes to “half empty, half full” thinking, money-grubbers are the world champions at “half empty.”

  • Nunzio X

    Interesting how “loss” is defined.

    1) A company makes a profit of $100 million one quarter. Next quarter, it makes a profit of $50 million. Both quarters there was profit, but people say the company “lost” $50 million the second quarter. HUH? No, you GAINED $50 million, in that your gain exceeded your expenses by that amount.

    2) You invest in the stock market, let’s say with a $100,000 initial investment. Over time this investment peaks at $250,000 but then the market drops and now you “only” have $200,000 and you say you “lost” $50,000. HUH? No, you’ve GAINED $100,000 in that your stocks are worth that much more than your initial investment.

    When it comes to “half empty, half full” thinking, money-grubbers are the world champions at “half empty.”

  • Hadrian999

    kind of a weak link between stock market losses and lives lost on the battlefield.
    value of stock can come back dead soldiers don’t come back from the dead, either way decisions have to be made based on facts and realistic projections not on emotional arguments or wishful thinking.
    usually bailing out of a stock as soon as it takes a hit is a bad idea though.

    • http://voxmagi-necessarywords.blogspot.com/ VoxMagi

      No kidding…its one of the few opportunities left for average folks to make quick investments…which is how I paid off all my debts years ago. I was lucky enough to be in a company that took a hit…for three bad quarters in a row (but which was essentially solid and valuable as a potential purchase by a larger corp. The stock had crashed to 6$ a share…so I folded my 401 k into nothing but company shares…tripled my money in three months, pulled out and cleared my debt slate…which I’ve never let grow again. Been debt free (or within 500 of it at any given time) for ten years since.

      • Hadrian999

        the thing about the stock market is that the “value” of a stock isn’t tied to the health of a company, a stock can drop for any number of reasons even if the earnings of a company are growing. i remember a while back the value of a company dropped because an old news story was shown by yahoo and it panicked investors and the stock price dropped.

    • http://voxmagi-necessarywords.blogspot.com/ VoxMagi

      No kidding…its one of the few opportunities left for average folks to make quick investments…which is how I paid off all my debts years ago. I was lucky enough to be in a company that took a hit…for three bad quarters in a row (but which was essentially solid and valuable as a potential purchase by a larger corp. The stock had crashed to 6$ a share…so I folded my 401 k into nothing but company shares…tripled my money in three months, pulled out and cleared my debt slate…which I’ve never let grow again. Been debt free (or within 500 of it at any given time) for ten years since.

  • Hadrian999

    kind of a weak link between stock market losses and lives lost on the battlefield.
    value of stock can come back dead soldiers don’t come back from the dead, either way decisions have to be made based on facts and realistic projections not on emotional arguments or wishful thinking.
    usually bailing out of a stock as soon as it takes a hit is a bad idea though.

  • Hadrian999

    kind of a weak link between stock market losses and lives lost on the battlefield.
    value of stock can come back dead soldiers don’t come back from the dead, either way decisions have to be made based on facts and realistic projections not on emotional arguments or wishful thinking.
    usually bailing out of a stock as soon as it takes a hit is a bad idea though.

  • http://hormeticminds.blogspot.com/ Chaorder Gradient

    speaking of people who dont know when to get out:

    http://www.youtube.com/watch?v=QN_kt97w7Wg&feature=player_embedded#!

  • http://hormeticminds.blogspot.com/ Chaorder Gradient

    speaking of people who dont know when to get out:

    http://www.youtube.com/watch?v=QN_kt97w7Wg&feature=player_embedded#!

  • Anonymous

    Interesting Mr. German but I call my War good training. The Beast trained me to kill. Imagine the tragedy of one of it’s Dogs running off the leash.

    Power to the People.

  • Redacted

    Interesting Mr. German but I call my War good training. The Beast trained me to kill. Imagine the tragedy of one of it’s Dogs running off the leash.

    Power to the People.

    I got the Red Star put to my flesh, so I would know what I stand for, for my entire life. If I should ever differ, I would have a constant reminder of my betrayal.

  • http://voxmagi-necessarywords.blogspot.com/ VoxMagi

    No kidding…its one of the few opportunities left for average folks to make quick investments…which is how I paid off all my debts years ago. I was lucky enough to be in a company that took a hit…for three bad quarters in a row (but which was essentially solid and valuable as a potential purchase by a larger corp. The stock had crashed to 6$ a share…so I folded my 401 k into nothing but company shares…tripled my money in three months, pulled out and cleared my debt slate…which I’ve never let grow again. Been debt free (or within 500 of it at any given time) for ten years since.

  • http://voxmagi-necessarywords.blogspot.com/ VoxMagi

    No kidding…its one of the few opportunities left for average folks to make quick investments…which is how I paid off all my debts years ago. I was lucky enough to be in a company that took a hit…for three bad quarters in a row (but which was essentially solid and valuable as a potential purchase by a larger corp. The stock had crashed to 6$ a share…so I folded my 401 k into nothing but company shares…tripled my money in three months, pulled out and cleared my debt slate…which I’ve never let grow again. Been debt free (or within 500 of it at any given time) for ten years since.

  • Hadrian999

    the thing about the stock market is that the “value” of a stock isn’t tied to the health of a company, a stock can drop for any number of reasons even if the earnings of a company are growing. i remember a while back the value of a company dropped because an old news story was shown by yahoo and it panicked investors and the stock price dropped.

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