Professor Bainbridge...on law, politics, religion, culture & food

Is HRC Being Rational?

Why is Hillary Clinton persisting in the race for the Democratic Presidential nomination in the face of what now appears to be insurmountable odds? Is her continuing struggle what a rational self-maximizing actor would do?

If Hillary is thinking, “well, we’ve already spent so much time and effort on it, we have to keep going to justify those expenditures,” she is making a classic economic mistake. The relevant economic concept is sunk costs: What is done cannot be undone. Sunk costs thus are those are costs that have been incurred and cannot be reversed, such as researching a failed product idea.

The rational decisionmaker does not factor sunk costs into his analysis. When I lived in Illinois, I had season tickets to UI football. Inevitably, the last game of the year would be played in lousy weather - snow or sleet or something likewise awful. (Boy, I don’t miss that stuff.) I would propose staying home instead of going to the game. The good wife would insist that we should go because we had paid for the tickets. And I would explain sunk costs: We had already paid for the tickets. We could not get our money back. The sole question was whether the utility of going to the game outweighed the utility of not freezing to death. The cost of the tickets was irrelevant to that calculus. (The good wife grasped this concept quite easily, being a smart cookie, and not infrequently uses it for her own nefarious purposes.)

From one perspective, the time and effort Hillary has put into her campaign are sunk. If she is a rational decisionmaker, they will not affect her decision.

From another perspective, however, the time, effort, and money spent to date can be viewed as an investment. Even if Hillary can no longer reasonably win the nomination, she could still get a return on her investment, in which case continued efforts are economically rational. She could cut any number of deals that might be attractive: E.g., the first female Vice President amd one whose political power and skill at infighting could make her a virtual co-President. Obama would be nuts to give her this, as Clinton’s VP office would surely become a power center to rival the Oval Office. You want to keep your enemies close, but maybe not that close.

What might Hillary want that Obama could promise her? A prime time speech at the convention is a certainty, of course. Help raising money to pay of her campaign debts is an idea that’s already being floated. Appoint key Clinton allies to the Cabinet? A Supreme Court appointment?