If they had successfully turned WebOS into a major player in the phone/tablet market it could have been a business worth tens of billions. It's perfectly possible that they thought "there's a 90% chance that this will fail, but it's still a smart gamble"

The part that surprised me is that they're apparently killing off the hardware entirely. I'd assumed that their fallback position would be to become another Android manufacturer and at least make use of the Palm hardware expertise they bought. I guess they don't even think they can make a go of it in that market.