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sunk cost directory


“Sunk Cost As a Self-Management Device”, Hong et al 2018

2018-hong.pdf: “Sunk Cost as a Self-Management Device”⁠, Fuhai Hong, Wei Huang, Xiaojian Zhao (2018-08-01; backlinks; similar):

The sunk cost effect has been widely observed in individual decisions. Building on an intrapersonal self-management game, the paper theoretically shows that the sunk cost effect may stem from an attempt to overcome the underinvestment problem associated with a high degree of present bias or to resolve the multi-selves coordination problem when the degree of present bias is low. Especially for individuals with severe present bias, the current self may take a costly action (which is a sunk cost for the future self) to signal the individual’s high success probability that motivates his future self-disciplining behaviors. In equilibrium, a higher level of sunk cost is more likely to give rise to a higher probability for the individual to continue the project. We then conduct a laboratory experiment. The empirical findings are consistent with our theoretical implications.

The online appendix is available at 10.1287 /  ​mnsc.2018.3032


“The Interpersonal Sunk-Cost Effect”, Olivola 2018

2018-olivola.pdf: “The Interpersonal Sunk-Cost Effect”⁠, Christopher Y. Olivola (2018; backlinks; similar):

The sunk-cost fallacy—pursuing an inferior alternative merely because we have previously invested significant, but nonrecoverable, resources in it—represents a striking violation of rational decision making. Whereas theoretical accounts and empirical examinations of the sunk-cost effect have generally been based on the assumption that it is a purely intrapersonal phenomenon (ie. solely driven by one’s own past investments), the present research demonstrates that it is also an interpersonal effect (ie. people will alter their choices in response to other people’s past investments). Across eight experiments (n = 6,076) covering diverse scenarios, I documented sunk-cost effects when the costs are borne by someone other than the decision maker. Moreover, the interpersonal sunk-cost effect is not moderated by social closeness or whether other people observe their sunk costs being “honored.” These findings uncover a previously undocumented bias, reveal that the sunk-cost effect is a much broader phenomenon than previously thought, and pose interesting challenges for existing accounts of this fascinating human tendency.

“On Having Enough Socks”, Branwen 2017

Socks: “On Having Enough Socks”⁠, Gwern Branwen (2017-11-22; ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ; backlinks; similar):

Personal experience and surveys on running out of socks; discussion of socks as small example of human procrastination and irrationality, caused by lack of explicit deliberative thought where no natural triggers or habits exist.

After running out of socks one day, I reflected on how ordinary tasks get neglected. Anecdotally and in 3 online surveys, people report often not having enough socks, a problem which correlates with rarity of sock purchases and demographic variables, consistent with a neglect/​procrastination interpretation: because there is no specific time or triggering factor to replenish a shrinking sock stockpile, it is easy to run out.

This reminds me of akrasia on minor tasks, ‘yak shaving’, and the nature of disaster in complex systems: lack of hard rules lets errors accumulate, without any ‘global’ understanding of the drift into disaster (or at least inefficiency). Humans on a smaller scale also ‘drift’ when they engage in System I reactive thinking & action for too long, resulting in cognitive biases⁠. An example of drift is the generalized human failure to explore/​experiment adequately, resulting in overly greedy exploitative behavior of the current local optimum. Grocery shopping provides a case study: despite large gains, most people do not explore, perhaps because there is no established routine or practice involving experimentation. Fixes for these things can be seen as ensuring that System II deliberative cognition is periodically invoked to review things at a global level, such as developing a habit of maximum exploration at first purchase of a food product, or annually reviewing possessions to note problems like a lack of socks.

While socks may be small things, they may reflect big things.

“What You Should Know About Megaprojects and Why: An Overview”, Flyvbjerg 2014

2014-flyvbjerg.pdf: “What You Should Know About Megaprojects and Why: An Overview”⁠, Bent Flyvbjerg (2014-04-07; ⁠, ; backlinks; similar):

This paper takes stock of megaproject management, an emerging and hugely costly field of study.

First, it answers the question of how large megaprojects are by measuring them in the units mega, giga, and tera, concluding we are presently entering a new “tera era” of trillion-dollar projects. Second, total global megaproject spending is assessed, at USD 6–9 trillion annually, or 8% of total global GDP, which denotes the biggest investment boom in human history. Third, four “sublimes” —political, technological, economic, and aesthetic—are identified to explain the increased size and frequency of megaprojects. Fourth, the “iron law of megaprojects” is laid out and documented: Over budget, over time, over and over again. [“Make Megaprojects More Modular”] Moreover, the “break-fix model” of megaproject management is introduced as an explanation of the iron law. Fifth, Albert O. Hirschman’s theory of the Hiding Hand is revisited and critiqued as unfounded and corrupting for megaproject thinking in both the academy and policy. Sixth, it is shown how megaprojects are systematically subject to “survival of the unfittest”, explaining why the worst projects get built instead of the best.

Finally, it is argued that the conventional way of managing megaprojects has reached a “tension point”, where tradition is challenged and reform is emerging.

“An FMRI Study on Sunk Cost Effect”, Zeng et al 2013

2013-zeng.pdf: “An fMRI study on sunk cost effect”⁠, Jianmin Zeng, Qinglin Zhang, Changming Chen, Rongjun Yu, Qiyong Gong (2013-01-01; backlinks)

“One Man’s Modus Ponens”, Branwen 2012

Modus: “One Man’s Modus Ponens”⁠, Gwern Branwen (2012-05-01; ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ; backlinks; similar):

One man’s modus ponens is another man’s modus tollens is a saying in Western philosophy encapsulating a common response to a logical proof which generalizes the reductio ad absurdum and consists of rejecting a premise based on an implied conclusion. I explain it in more detail, provide examples, and a Bayesian gloss.

A logically-valid argument which takes the form of a modus ponens may be interpreted in several ways; a major one is to interpret it as a kind of reductio ad absurdum, where by ‘proving’ a conclusion believed to be false, one might instead take it as a modus tollens which proves that one of the premises is false. This “Moorean shift” is aphorized as the snowclone⁠, “One man’s modus ponens is another man’s modus tollens”.

The Moorean shift is a powerful counter-argument which has been deployed against many skeptical & metaphysical claims in philosophy, where often the conclusion is extremely unlikely and little evidence can be provided for the premises used in the proofs; and it is relevant to many other debates, particularly methodological ones.

“Free Distribution or Cost-Sharing? Evidence from a Randomized Malaria Prevention Experiment”, Cohen & Dupas 2010

2010-cohen.pdf: “Free Distribution or Cost-Sharing? Evidence from a Randomized Malaria Prevention Experiment”⁠, Jessica Cohen, Pascaline Dupas (2010-02-01; backlinks; similar):

It is often argued that cost-sharing—charging a subsidized, positive price—for a health product is necessary to avoid wasting resources on those who will not use or do not need the product. We explore this argument through a field experiment in Kenya, in which we randomized the price at which prenatal clinics could sell long-lasting antimalarial insecticide-treated bed nets (ITNs) to pregnant women. We find no evidence that cost-sharing reduces wastage on those who will not use the product: women who received free ITNs are not less likely to use them than those who paid subsidized positive prices. We also find no evidence that cost-sharing induces selection of women who need the net more: those who pay higher prices appear no sicker than the average prenatal client in the area in terms of measured anemia (an important indicator of malaria). Cost-sharing does, however, considerably dampen demand. We find that uptake drops by sixty percentage points when the price of ITNs increases from zero to $0.83$0.602010 (ie. from 100% to 90% subsidy), a price still $0.21$0.152010 below the price at which ITNs are currently sold to pregnant women in Kenya. We combine our estimates in a cost-effectiveness analysis of the impact of ITN prices on child mortality that incorporates both private and social returns to ITN usage. Overall, our results suggest that free distribution of ITNs could save many more lives than cost-sharing programs have achieved so far, and, given the large positive externality associated with widespread usage of ITNs, would likely do so at a lesser cost per life saved.

[Keywords: Subsidies, Prices, Malaria, Distribution costs, Sharing, Women, Anemia, Cost efficiency, Random allocation, Sunk costs]

“Hyperbolic Discounting Is Rational: Valuing the Far Future With Uncertain Discount Rates”, Farmer & Geanakoplos 2009

“Hyperbolic discounting is rational: valuing the far future with uncertain discount rates”⁠, J. Doyne Farmer, John Geanakoplos (2009-08; backlinks; similar):

Conventional economics supposes that agents value the present vs. the future using an exponential discounting function. In contrast, experiments with animals and humans suggest that agents are better described as hyperbolic discounters, whose discount function decays much more slowly at large times, as a power law⁠. This is generally regarded as being time inconsistent or irrational. We show that when agents cannot be sure of their own future one-period discount rates, then hyperbolic discounting can become rational and exponential discounting irrational. This has important implications for environmental economics, as it implies a much larger weight for the far future.

[Keywords: Hyperbolic discounting, environment, time consistent, exponential discounting, geometric random walk, term structure of interest rates.]

“Dual N-Back FAQ”, Branwen 2009

DNB-FAQ: “Dual n-Back FAQ”⁠, Gwern Branwen (2009-03-25; ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ⁠, ; backlinks; similar):

A compendium of DNB, WM⁠, IQ information up to 2015.

Between 2008 and 2011, I collected a number of anecdotal reports about the effects of n-backing; there are many other anecdotes out there, but the following are a good representation—for what they’re worth.

“Are Older Adults Less Subject to the Sunk-Cost Fallacy Than Younger Adults?”, Strough et al 2008

2008-strough.pdf: “Are Older Adults Less Subject to the Sunk-Cost Fallacy Than Younger Adults?”⁠, JoNell Strough, Clare M. Mehta, Joseph P. McFall, Kelly L. Schuller (2008-01-01; backlinks)

“Factors Affecting Entrapment: Justification Needs, Face Concerns, and Personal Networks”, Karavanov & Cai 2007

2007-karavanov.pdf: “Factors Affecting Entrapment: Justification Needs, Face Concerns, and Personal Networks”⁠, Anya Karavanov, Deborah A. Cai (2007; backlinks; similar):

This study explores the link between the entrapment bias and the concept of face (self-positive and other-positive) and internal and external justification processes. It examines how face-saving concerns and justification needs moderate the entrapment bias in accountability condition (ie. presence of constituencies and reporting requirements). In addition, this research looks at whether the size and influence of personal networks is associated with face-saving behaviors that, in turn, affect entrapment. The research also explores whether overall face concerns have an effect on internal and external self-justification.

Participants were 236 undergraduate communication majors enrolled in a large East Coast university, who were assigned to one of the four conditions: (1) constituency, reporting; (2) constituency, no reporting; (3) no constituency; reporting; (4) no constituency; no reporting.

The current investigation did not support the findings from previous studies that suggest that justification processes and face concerns lead to entrapment. This study found that only internal self-justification and other-positive face concerns are related to entrapment, but instead of contributing to entrapment, these aspects prevent individuals from becoming entrapped. Personal networks were demonstrated to have positive effect on both self-positive and other-positive face concerns, providing empirical support for the value of using personal networks as a predictor of face goals. However, personal networks did not contribute to entrapment.

Overall, this study identifies processes and conditions (eg. concern for other-positive face, internal self-justification, reporting requirement, no direct observation by constituency, keeping clear record of performance success or failure) that may prevent the entrapment bias from occurring. Implications of this research are discussed as well as directions for future research.

“Information Systems Project Continuation in Escalation Situations: A Real Options Model”, Tiwana et al 2006

2006-tiwana.pdf: “Information Systems Project Continuation in Escalation Situations: A Real Options Model”⁠, Amrit Tiwana, Mark Keil, Robert G. Fichman (2006-10-09; ; backlinks; similar):

Software project escalation has been shown to be a widespread phenomenon. With few exceptions, prior research has portrayed escalation as an irrational decision-making process whereby additional resources are plowed into a failing project.

In this article, we examine the possibility that in some cases managers escalate their commitment not because they are acting irrationally, but rather as a rational response to real options that may be embedded in a project.

A project embeds real options when managers have the opportunity but not the obligation to adjust the future direction of the project in response to external or internal events. Examples include deferring the project, switching the project to serve a different purpose, changing the scale of the project, implementing it in incremental stages, abandoning the project, or using the project as a platform for future growth opportunities. Although real options can represent a substantial portion of a project’s value, they rarely enter a project’s formal justification process in the traditional quantitative discounted cash-flow-based project valuation techniques.

Using experimental data collected from managers in 123 firms, we demonstrate that managers recognize and value the presence of real options. We also assess the relative importance that managers ascribe to each type of real option, showing that growth options are more highly valued than operational options. Finally, we demonstrate that the influence of the options on project continuation decisions is largely mediated by the perceived value that they add.

Implications for both theory and practice are discussed.

[Keywords: decision making, escalation, information integration, information systems, innovation management, investment decisions, project continuation, project management, real options]

“Loss Aversion Jpe Final 06.dvi”, mkc43 2006

2006-chen.pdf: “loss aversion jpe final 06.dvi”⁠, mkc43 (2006-01-01; backlinks)

“Caring About Sunk Costs: A Behavioral Solution to Holdup Problems With Small Stakes”, Carmichael & MacLeod 2003

2003-carmichael.pdf: “Caring About Sunk Costs: A Behavioral Solution to Holdup Problems With Small Stakes”⁠, Lorne Carmichael, W. Bentley MacLeod (2003-04-01; backlinks; similar):

Economics students need to be taught that opportunity costs are important for optimal decision making but that sunk costs are not. Why should this be? Presumably these students have been making optimal decisions all their lives, and the concepts should be easy for them. We show that caring about sunk costs can help agents achieve efficient investments in a simple team production environment. Furthermore, the solution we propose is uniquely efficient if the environment is sufficiently complex. Hence, in addition to explaining contract form and ownership (Williamson, 1975; Hart, 1995), studies of the holdup problem may also provide insights into observed behavior in day-today bilateral bargaining problems.

“Organizational Behavior and Human Decision Processes”, Boehne & 2002

2002-boehne.pdf: “Organizational Behavior and Human Decision Processes”⁠, Boehne, D. M. (2002-01-01; backlinks)

“ Marching Towards Profitability”, Mendelson & Meza 2001

2001-mendelson.pdf: “ Marching Towards Profitability”⁠, Haim Mendelson, Philip Meza (2001-07-01; backlinks)

“Spatial Variation In Tuber Depletion By Swans Explained By Differences In Net Intake Rates”, Nolet et al 2001

2001-nolet.pdf: “Spatial Variation In Tuber Depletion By Swans Explained By Differences In Net Intake Rates”⁠, Bart A. Nolet, Oscar Langevoord, Richard M. Bevan, Kirsten R. Engelaar, Marcel Klaassen, Roef J. W. Mulder et al (2001-06-01; backlinks; similar):

We tested whether the spatial variation in resource depletion by Tundra Swans (Cygnus columbianus) foraging on below-ground tubers of sago pondweed (Potamogeton pectinatus) was caused by differences in net energy intake rates.

The variation in giving-up densities within the confines of one lake was nearly 8×, the giving-up density being positively related to water depth and, to a lesser extent, the silt content of the sediment. The swans’ preference (measured as cumulative foraging pressure) was negatively related to these variables.

We adjusted a model developed for diving birds to predict changes in the time allocation of foraging swans with changes in power requirements and harvest rate. First, we compared the behavior of free-living swans foraging in shallow and deep water, where they feed by head-dipping and up-ending, respectively. Up-ending swans had 1.3–2.1× longer feeding times than head-dipping swans. This was contrary to our expectation, since the model predicted a decrease in feeding time with an increase in feeding power. However, up-ending swans also had 1.9× longer trampling times than head-dipping swans. The model predicted a strong positive correlation between trampling time and feeding time, and the longer trampling times may thus have masked any effect of an increase in feeding power. Heart rate measurements showed that trampling was the most energetically costly part of foraging. However, because the feeding time and trampling time changed concurrently, the rate of energy expenditure was only slightly higher in deep water (1.03–1.06×). This is a conservative estimate since it does not take into account that the feeding costs of up-ending are possibly higher than that of head-dipping. Second, we compared captive swans foraging on sandy and clayey sediments. We found that the harvest rate on clayey sediment was only 0.6× that on sandy sediment and that the power requirements for foraging were 1.2–1.4× greater.

Our results are in qualitative agreement with the hypothesis that the large spatial variation in giving-up densities was caused by differences in net rates of energy intake. This potentially has important implications for the prey dynamics, because plant regrowth has been shown to be related to the same habitat factors (water depth and sediment type).

“Discrepancies Between Normative and Descriptive Models of Decision Making and the Understanding /Acceptance Principle”, Stanovich & E. 1999

1999-stanovich.pdf: “Discrepancies Between Normative and Descriptive Models of Decision Making and the Understanding  / Acceptance Principle”⁠, Stanovich, K. E. (1999-01-01; backlinks)

“Mental Accounting in Childhood”, Webley & Plaisier 1998

1998-webley.pdf: “Mental Accounting in Childhood”⁠, Paul Webley, Zarrea Plaisier (1998-06-01; backlinks; similar):

The purpose of this study was to investigate the development of mental accounts. Of particular concern was how mental accounts function in the everyday life of children and how children deal with money matters. Sixty children from three age groups (5–6, 8–9 and 11–12) were individually interviewed about their financial situation (eg. sources of money, storage of money, expenditure patterns) and were presented with various financial scenarios. Some of these were children’s versions of scenarios devised for adults by Thaler and by Kahnemann and Tversky; others (on windfalls, on money Tumping’, on buying for self versus buying for others) were devised especially for this study. No compelling evidence was found for mental accounting in childhood though there was some indication that the 11–12-year-olds responded in a similar fashion to adults whilst the younger children did not.


1998-bragger.pdf: “ORGANIZATIONAL BEHAVIOR AND HUMAN DECISION PROCESSES, Vol. 74 Issue 03”⁠, Bragger, J. (1998-01-01; backlinks)


1993-huyck.pdf: “nhm3175.tmp” (1993-01-01; backlinks)

“Throwing Good Money After Bad?: Nuclear Power Plant Investment Decisions and the Relevance of Sunk Costs”, Bondt & Makhija 1988

1988-debondt.pdf: “Throwing good money after bad?: Nuclear power plant investment decisions and the relevance of sunk costs”⁠, Werner F. M. De Bondt, Anil K. Makhija (1988-09; backlinks; similar):

Experimental psychologists and decision theorists suggest that managers are overly reluctant to terminate economically unviable projects and that they fail to ignore sunk costs. This study serves two purposes. First, it shows that the framework of prospect theory allows us to reconcile the sunk cost effect with some older, well-established ideas in investment decision-making. Secondly, the study investigates the external validity of the sunk cost research in the context of the U.S. nuclear power program. The empirical analysis is based on share price movements in reaction to, among other events, all plant completions and cancellations (over $157.7$50.01984 million) prior to March 1984. The results are mixed. However, prudency reviews ordered by Public Service Commissions around the nation point to evidence consistent with the sunk cost fallacy.

“Eliminating the Hindsight Bias”, Arkes et al 1988

1988-arkes.pdf: “Eliminating the Hindsight Bias”⁠, Hal R. Arkes, David Faust, Thomas J. Guilmette, Kathleen Hart (1988-05; ; backlinks; similar):

Those who consider the likelihood of an event after it has occurred exaggerate their likelihood of having been able to predict that event in advance. We attempted to eliminate this hindsight bias among 194 neuropsychologists. Foresight subjects read a case history and were asked to estimate the probability of three different diagnoses. Subjects in each of the three hindsight groups were told that one of the three diagnoses was correct and were asked to state what probability they would have assigned to each diagnosis if they were making the original diagnosis. Foresight-reasons and hindsight-reasons subjects performed the same task as their foresight and hindsight counterparts, except they had to list one reason why each of the possible diagnoses might be correct. The frequency of subjects succumbing to the hindsight bias was lower in the hindsight-reasons groups than in the hindsight groups not asked to list reasons, x2( 1, n = 140) = 4.12, p < 0.05.

“Dollars, Sense, and Sunk Costs: A Life Cycle Model of Resource Allocation Decisions”, Northcraft & Wolf 1984

1984-northcraft.pdf: “Dollars, Sense, and Sunk Costs: A Life Cycle Model of Resource Allocation Decisions”⁠, Gregory B. Northcraft, Gerrit Wolf (1984-04; backlinks; similar):

Decisions as to whether to cut off a losing enterprise (clouded by what already has been invested in the venture) may be facilitated by a new model proposed here—the life cycle model. The model, borrowing an accounting measure (the time adjusted rate of return) to describe the effect of “sunk costs” on the expected rate of return for future costs in a project, is used to examine the relevance of negative feedback to the decision to commit further resources to completion of a project.