Part 1 of 2
Behavioral economists have shown conclusively - and handed out Nobel Prizes to the pioneers of the idea - that people don't behave rationally once their own cash and pride is on the table.
The sunk cost fallacy simply states that the more money someone has invested in a product, the more difficult it is for them to give up on that product. The emotional connection to the product (I love it!) and the emotional cost to give up on it (I'll look stupid for changing my mind and losing money) override logical reasons to walk away.
Traders see it all the time in clients who dabble in the stock market, invest in companies that make products they like (I love my Blackberry!) and then can't walk away when the stock tanks (they're a good Canadian company and they'll bounce back, you'll see).
That, in a nutshell, is the story of the B.C. Liberals and their political and economic investment in the Site C dam.
As premier, Christy Clark was so sure building Site C was the right thing to do that she broke the longstanding practice of having the B.C. Utilities Commission review the merits of the plan before going ahead.
Heaven forbid that an independent body of experts might tarnish her dream with facts.
John Horgan's NDP campaigned on a review of the dam once in office, even though there has been two years of construction, nearly $2 billion spent and 2,000 people employed.
The commission's rushed review, released Wednesday, shows Site C likely won't be finished on time by 2024 and will end up costing billions more than budgeted to finish.
Delaying completion is the worst choice, the commission found. Spend another $10 billion and finish it or spend another $1.8 billion to shut it down. Daniel Kahneman and Amos Tversky couldn't have designed a better sunk cost experiment.
And Horgan has to face his own sunk costs to face on this file.
Before and during the provincial election, the NDP were only too happy to garner support from B.C.'s indigenous population by pointing out how the land, water and hunting rights of Peace area First Nations had been violated.
Now that Horgan sits in the premier's chair, those First Nations rightfully expect him to follow through on his implied threat to cancel the project.
The NDP announced Wednesday that it will study the commission's report and make a decision on the future of Site C by the end of the year but Horgan may already be tipping his hand.
On Tuesday, even before the commission released its findings, Horgan was musing to reporters that Site C might lose a Supreme Court case, even though all First Nations legal challenges so far have been dismissed by lower courts. True, Horgan conceded, but pointed out that those cases were environmental arguments, instead of legal claims over the disruption of hunting and fishing on traditional territory.
Then, on Wednesday, Energy Minister Michelle Mungall announced she and Scott Fraser, the minister of indigenous relations and reconciliation, will meet with Peace First Nations to discuss their concerns.
These could be the first steps into building a rationale to end Site C.
Even during the election, the Liberals said a utilities commission review was ridiculous because construction was past the point of no return. Imagine the glee in the NDP caucus at closing down what many of them see as a Christy Clark vanity project and holding on to power until the land reclamation is past the point of return for a new Liberal government to revive.
Or imagine the glee in the Liberal caucus when Horgan has to step before the cameras to admit that, despite the costs, indigenous concerns and his own personal misgivings, his government will support the completion of Site C.
Regardless of what Horgan decides, the Site C dam is a 20th century solution to growing energy demand when there are plenty of more sustainable and economically viable 21st century solutions available.
More on that tomorrow.
-- Editor-in-chief Neil Godbout
