Podcast Summary: Choiceology with Katy Milkman

Episode: When Sunk Costs Take Flight
Date: April 6, 2026
Host: Dr. Katy Milkman
Guest: Richard Thaler, Nobel Laureate in Economics

Episode Overview

In this episode, Katy Milkman delves into the powerful grip of the sunk cost fallacy—our tendency to continue investing time, effort, or money into a project simply because we've already put so much into it, even when it's against our better interests. Framed through the dramatic true story of Howard Hughes and the Spruce Goose (H-4 Hercules) aircraft, the episode interweaves expert commentary and behavioral economics research to explore why we struggle to "let go," and how that insight is as applicable on a personal level as it is for government or corporate titans.

The Tragic Triumph of the Spruce Goose

[00:05–15:01]

• The Spruce Goose Introduction:
  Bill Kolb, a volunteer tour guide at the Evergreen Aviation and Space Museum, sets the scene, introducing listeners to Hughes’ immense, wooden flying boat—a result of World War II urgency and ambition.

  “When you walk in the front door, you don't even notice the Hercules because your brain would not make sense of it… Then you notice it's attached to that big gray behemoth in the middle of the room. And your brain starts to process and say, oh, that must be the spruce goose. The H4, the Hercules.” —Bill Kolb [00:05]

• Backstory—Why Build It?
  During WWII, German U-boats threatened Allied cargo convoys. Henry Kaiser, a shipbuilder, proposes an aviation solution, partnering with visionary Howard Hughes.

  “He went to the government, said, hey, if we can't get through them, let's go over them.” —Bill Kolb [02:52]

• Challenges Faced:
  Government constraints forced construction from wood due to wartime metal shortages. Hughes’ perfectionism and relentless involvement created friction and delays.

  “There are stories of Howard walking through the assembly floor yelling at people because he sees something 20ft up that doesn't look quite right.” —Bill Kolb [06:09]

• The Partnership Unravels:
  As costs and delays mount and the end of the war nears, Kaiser leaves the project. Despite every rational reason to quit—waning military need, government pressure, personal financial loss—Hughes refuses to walk away.

  “It was a good time to leave, but that is antithetical to his personality...That is not a legacy that he wanted to have.” —Bill Kolb [08:16]

• Hughes’ Emotional Commitment and Public Defense:
  Hughes testifies before Congress, emotionally defending his obsession as a matter of personal reputation and pride.

  “I've put the sweat of my life into this thing. I have my reputation rolled up in it.” —Howard Hughes (via Bill Kolb) [12:10] “If it's a failure, I'll probably leave this country and never come back.” —Howard Hughes (via Bill Kolb) [12:11]

• The Maiden (and Only) Flight:
  After five years, the H4 flies for 26 seconds. Hughes achieves a personal triumph—but by then, the plane is obsolete, and the cost (monetary and reputational) far outweighs any utility.

  “It flew just 70ft above the water for about a mile. The whole thing took about 26 seconds and then he put it down nice and smooth.” —Bill Kolb [13:13]

• Memorable Reflection:

  “The Spruce Goose... flew just one time in 1947 for a total of 26 seconds.” —Dr. Katie Milkman [15:01]

Sunk Cost Psychology: Expert Discussion with Richard Thaler

[17:49–31:06]

• Defining the Sunk Cost Fallacy:
  Richard Thaler explains:

  “The idea is that if you've bought something, the money you paid for it is sunk. You can't get it back, and specifically you can't get it back by using it more.” —Richard Thaler [18:04]

• Classic Examples:

  • Dessert Dilemma:

    “You're already kind of full and the dessert is very rich, but you keep eating it because you paid a lot of money for it and like somehow eating it is going to help.” —Thaler [18:04]

  • Basketball in a Blizzard:

    “…if we had paid for those tickets, we would be going. I said, you know, you just said it would be crazy to drive in this weather.” —Thaler [19:05]

• Wine Conundrum:
  Mental accounting leads people to undervalue opportunity cost—drinking appreciated wine feels like “saving” money.

  “My favorite answer was, I save $200 by drinking this bottle of wine... that's not how an economist thinks, but that's mental accounting.” —Thaler [21:18]

• Mental Accounting & Sunk Costs:

  “Mental accounting is really the way you think about money in your head. And we often think about money in ways that is different than the way economists think we should.” —Thaler [23:15]

• Research Advancement:
  The field has evolved from thought experiments to analyzing real-world data. Gym membership studies illustrate that while sunk costs often bias us, sometimes they can be used for good (motivating exercise).

  “…people like the sunk cost because if they've paid, they've, oh, you know, I'm paying all this money to go to the gym, so I better go.” —Thaler [24:17]

• Why We Fall for It:
  Our aversion to waste and evolutionary roots (“loss aversion”) fuel the fallacy.

  “There probably were species that didn't suffer from loss aversion, but they're now extinct.” —Thaler quoting Tversky [25:41]

• Evidence in Professional Investing:
  Skilled managers, when deciding which stocks to sell, have “negative skill” because they often hang onto losers—hoping they’ll rebound, unwilling to “admit” sunk cost loss.

  “...Let's say instead they picked a stock at random from their portfolio and sold that. How would that do? And it turns out that would be better.” —Thaler [27:52]

Practical Insight & Advice

[28:55–30:44]

• Personal Practices:
  Thaler shares that he’s now skilled at ignoring sunk costs, willing to discard a bad bottle of wine rather than justifying finishing it.

• Advice for Listeners:
  Ask yourself:

  “Would I eat this dessert if it had been free? Would I go to this basketball game if it had been free?” —Thaler [30:14]
  “All your decisions should be forward looking as if there were no cost because the cost is irrecoverable.” —Milkman [30:28]

Behavioral Economics in Everyday Life

[31:06–End]

• Real-World Relevance:
  Katy Milkman connects the sunk cost bias to daily choices—from car repairs, to eating out, to professional sports (e.g., NBA coaches playing high draft picks more due to their status as sunk costs).

• When Sunk Costs Can Help:
  Strategic prepayments (like for a gym) can be harnessed for positive motivation, but most often, ignoring sunk costs leads to better decisions.

• Key Takeaway:

  “Good decisions are forward looking. The past is sunk. The only question that matters is what's the best choice now?” —Milkman [Final Thoughts]

Notable Quotes & Timestamps

| Timestamp | Quote | Attribution | |----------------|-------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------| | 12:10–12:11 | "I've put the sweat of my life into this thing. I have my reputation rolled up in it... if it's a failure, I'll probably leave this country." | Howard Hughes (via Kolb) | | 18:04 | "...if you've bought something, the money you paid for it is sunk. You can't get it back, and specifically you can't get it back by using it more." | Richard Thaler | | 25:41 | "There probably were species that didn't suffer from loss aversion, but they're now extinct." | Richard Thaler (quoting Tversky) | | 30:14 | "Would I eat this dessert if it had been free? Would I go to this basketball game if it had been free?" | Richard Thaler | | 30:28 | "All your decisions should be forward looking as if there were no cost because the cost is irrecoverable." | Katy Milkman | | Final thoughts | "Good decisions are forward looking. The past is sunk. The only question that matters is what's the best choice now?" | Katy Milkman |

Key Discussion Points

• The development of the Spruce Goose as a parable for the sunk cost fallacy.
• The psychological underpinnings: loss aversion, mental accounting, and the aversion to “waste.”
• Personal anecdotes and classic studies on sunk cost, including examples about food, sports tickets, wine, and investments.
• Research demonstrating that even professionals are susceptible to sunk cost errors.
• How to resist the sunk cost trap: focus on the future, not past investments; use “would I do this if it was free?” as a litmus test.
• Recognition that, in some cases, pre-committed costs can have motivational benefits.

Conclusion

This episode of Choiceology masterfully dissects the sunk cost fallacy through story, science, and practical guidance. The enduring lesson: Ignore what's irrecoverable and decide based on what's best going forward. As Milkman concludes, "Good decisions are forward looking. The past is sunk."

For further details, resources, or to explore related research, listeners are encouraged to visit schwab.com/choiceology.