Sunk Cost Fallacy Is Still A Fallacy Even With HS2


From our Swindon Correspondent – you know, the home of the Great Western Railway?

The project has already cost so much that we should at least finish the London to Birmingham section, Sir Amyas Morse, the outgoing chief of the National Audit Office (NAO), said. The country would have to be in ‘a lot of economic trouble’ to pull the plug on the mammoth project, he said.

This is classic sunk-cost fallacy. We’ve already spent about £4.1bn. Now, maybe if we’ve spent that, and the benefits are more than the remaining costs, that’s worth it, but the benefits aren’t even there on the original estimates.
The government estimated £41.4 to 46.9bn of benefits. We’ve spent £4.1bn. The total cost is estimated at £56bn. Deduct 4.1 from 56 and you have a remaining cost of £51.9bn to yield a benefit of £46.9bn.
And that’s not accounting for the fact that, as Tim Worstall pointed out, they haven’t included people working on trains.
Nor does it include the fact that rail demand fell last year. Or that people are using their season tickets to make 378 journeys per year rather than the rail industry estimate of 480 journeys per year. The industry assumes people do 5 days in the office and maybe the odd trip on a weekend. 10.3 trips per week. But they’re actually doing 8.5 trips per week. Because since HS2 was created, we’ve had improvements in collaboration tools, a fall in the price of laptops, and lots of people are doing a day or two at home every week. The government has designed a railway with returns based on 60 years that are going to be 20% lower on day 1.