Victoria to pay $380m compensation for cancelling 2026 Commonwealth Games
www.abc.net.au
The State of Victoria has agreed to pay the Commonwealth Games parties $380 million in compensation after pulling out of the 2026 regional event.

Part of me is inclined to say might as well keep going with the games, but then I think sunk cost fallacy.

Does anyone even care about the commonwealth games?

  • ZagorathEnglish
    6•11 months ago

    but then I think sunk cost fallacy

    It’s important to remember precisely what the sunk cost fallacy means, because it’s not necessarily completely intuitive.

    The sunk cost fallacy requires you to ignore any time or money already spent. But you still evaluate any potential future costs compared to the benefit.

    With any event like the Commonwealth Games there are obviously non-financial aspects, but for these purposes we can either ignore them or assume they have been somehow quantified and put into a dollar-equivalent figure.

    So the calculation to decide whether or not to keep the Commonwealth Games going is:

    • Take the cost of continuing to host them (building infrastructure, etc.). Ignore any already-spent money. Call this C1.

    • Take the cost of not hosting them (the $380 MM compensation, plus intangibles like reputational damage, etc.). Call it C2.

    • Take the benefit of hosting them (direct income from tourism, health benefits from increased sporting participation, plus any intangibles). Ignore any benefits already locked in, like infrastructure that has already been built or is going to be built regardless. Call it B.

    Note that because it’s politicians making this decision, they’ll also be factoring in the political optics into this decision. If they think most Victorians don’t want the Commonwealth Games, that would be an increase to C1 (the cost of hosting the Games is increased as people think your Government is out of touch and count that against you). Some Victorians might also be in favour of hosting them, which would be an increase to B.

    Then you just evaluate:

    B > C1 - C2

    If that’s true, keep the games. If it’s false, cancel them.

    Note that at day-0 (before signing on to the games) C2 would be 0, so you would be doing a simple “are the costs of hosting them bigger than the benefits we’d get?” But since some obligation has already been entered into, there is a higher hurdle to cross before it makes financial sense to cancel them. Note also that it means if the cost of pulling out was greater than the cost of continuing on, the right-hand-side of the inequality would be negative, and thus even if there were zero benefit, it would still be worth doing. Imagine, for example, if the charge for pulling out was some nonsensically high value like $100 billion.