Sunk costs instead of Linear Shinkansen Effect?

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jok
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Joined: 3. Apr 2021, 16:07

Sunk costs instead of Linear Shinkansen Effect?

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Sunk costs instead of Linear Shinkansen Effect?

The following text is a summary and translation of a guest post by a Japanese psychologist on Yahoo Japan News.

The article deals with the consequences of videoconferencing and asks whether the construction of the Japanese high-speed maglev system is still meaningful in view of the social change (triggered by Corona consequences). The quoted author fears permanent inefficiency and massive financial losses and seems to advise against further construction of the line. A quick exit from the project would cost less than continuing to hold on to it.

The "Linear Central Shinkansen" is being constructed as a major east-west artery to replace the Tokaido Shinkansen. [...]
I am concerned [...]: the impact of the major social changes brought about by the outbreak of the new coronavirus infection. [...]

 The coronavirus epidemic has brought telework and online meetings closer to people. Even before the Corona disaster, there were technologies that made these things possible, but people who were forced to use online meeting systems because of the Corona disaster found that they were surprisingly useful. [...]

I understand that face-to-face meetings are smoother in many ways [...] There are many advantages of online. There is less travel time and cost, so the hurdle of meetings is lowered and schedules can be adjusted more easily. [...] If the main focus of the meeting is to listen to someone speak, you can participate while moving around. In light of these factors, it is probably best to assume that business trips and face-to-face meetings will not be as frequent as they were before the coronas [...]

 Transportation will be hit the hardest by the decline in business travel. In particular, the number of people using the Shinkansen, which connects major cities and was mainly used for business purposes, has plummeted. However, despite this, the construction of the Linear-Central Shinkansen is progressing steadily. In the planning stage before the corona disaster, the idea was to take away customers from airplanes by increasing speed, but in the world that the corona disaster has changed, the rival for high-speed rail may not be airplanes or other forms of transportation, but online conference systems such as Zoom. [...]

 I don't have the knowledge or data to judge the profitability of the linear Shinkansen if the current situation continues, so I can't say that we should "go ahead" or "stop" the construction. However, as a psychologist, I am a little concerned about the way the mind tends to misjudge in such cases, so I would like to explain.

[...]
[W]e pay for research and development or buy stocks or real estate because we think it will pay off in the future. However, since the future is uncertain, there are times when you cannot make back the cost you paid in advance. In such a case, you can limit your losses to the amount you have paid up to that point by giving up quickly and pulling out immediately. This is what is called "cutting your losses". However, we tend to pay the cost of further development and investment, thinking conveniently that "things may turn around" because we want to get back the cost we have paid so far. As a result, you may end up incurring a larger loss than if you had cut your losses immediately.

In psychology, this is called the "sunk cost effect". [...]

 The current situation of the Linear Shinkansen is similar to that [...]. I am sure that the profitability of the project is being recalculated in the wake of the Corona disaster, and although it may be none of my business, I would like to ask you to consider the sunk cost effect in your mind. However, I hope that the sunk cost effect will not become known as the "linear shinkansen effect" in the near future.
Source of the original article (In Japanese): https://news.yahoo.co.jp/articles/62ad6 ... 9e3ba0f6e5
Accessed: 2021-04-06
Best regards,
jok

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