2018-hong.pdf: “Sunk Cost as a Self-Management Device”, (2018-08-01; ):
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/
2018-olivola.pdf: “The Interpersonal Sunk-Cost Effect”, (2018-01-01; ):
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 (i.e., solely driven by one’s own past investments), the present research demonstrates that it is also an interpersonal effect (i.e., 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.
2013-zeng.pdf: “An fMRI study on sunk cost effect”, Jianmin Zeng, Qinglin Zhang, Changming Chen, Rongjun Yu, Qiyong Gong ( )
2010-cohen.pdf: “Free Distribution or Cost-Sharing? Evidence from a Randomized Malaria Prevention Experiment”, (2010-02-01; ):
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 $0.79$0.602010 (i.e., from 100% to 90% subsidy), a price still $0.20$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]
2009-wennberg.pdf: “Final_EXIT_text.doc” ( )
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 ( )
2007-friedman.pdf: “Microsoft Word - SUNK9.doc”, dan ( )
2007-karavanov.pdf: “Factors Affecting Entrapment: Justification Needs, Face Concerns, and Personal Networks”, (2007; ):
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 (i.e., 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 (e.g., 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.
2006-chen.pdf: “loss aversion jpe final 06.dvi”, mkc43 ( )
2003-carmichael.pdf: “Caring About Sunk Costs: A Behavioral Solution to Holdup Problems With Small Stakes”, (2003-04-01; ):
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.
2002-boehne.pdf: “Organizational Behavior and Human Decision Processes”, Boehne, D. M. et.al ( )
2001-mendelson.pdf: “Amazon.com: Marching Towards Profitability”, Haim Mendelson, Philip Meza ( )
2001-nolet.pdf: “ecol_82_612.1655_1667.tp”, penta@ultra1 ( )
2000-khan.pdf: “khan”, AmornrutS ( )
1999-stanovich.pdf: “Discrepancies Between Normative and Descriptive Models of Decision Making and the Understanding /
Acceptance Principle”, Stanovich, K. E., et al. ( )
1998-bragger.pdf: “ORGANIZATIONAL BEHAVIOR AND HUMAN DECISION PROCESSES, Vol. 74 Issue 03”, Bragger, J., et al. ( )
1995-tan.pdf: “pjz62e1.PDF” ( )
1995-heath.pdf: “cyg42f2.PDF” ( )
1993-whyte.pdf: “aae5301.PDF” ( )
1993-huyck.pdf: “nhm3175.tmp” ( )
1990-wiklund-a.pdf: “PII: S0003-3472(05)80919-4”, Guest ( )
1988-debondt.pdf: “Throwing good money after bad?: Nuclear power plant investment decisions and the relevance of sunk costs”, (1988-09; ):
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 $149$501984 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.
1988-arkes.pdf: “Eliminating the Hindsight Bias”, (1988-05; ):
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.
1988-armstrong.pdf: “PII: S0003-3472(88)80180-5” ( )
1984-northcraft.pdf: “Dollars, Sense, and Sunk Costs: A Life Cycle Model of Resource Allocation Decisions”, (1984-04; ):
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.
1984-bazerman.pdf: “PII: 0030-5073(84)90017-5” ( )
1981-biermann.pdf: “PII: S0003-3472(81)80109-1” ( )
1980-dawkins.pdf: “PII: S0003-3472(80)80149-7” ( )
1976-staw.pdf: “PII: 0030-5073(76)90005-2” ( )