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Do Sunk Costs Matter?

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Author Info

  • R. PRESTON MCAFEE
  • HUGO M. MIALON
  • SUE H. MIALON

Abstract

"That sunk costs are not relevant to rational decision making is often presented as one of the basic principles of economics. When people are influenced by sunk costs in their decision making, they are said to be committing the "sunk cost fallacy." Contrary to conventional wisdom, we argue that in a broad range of situations, it is rational for people to condition behavior on sunk costs because of informational content, reputational concerns, or financial and time constraints. Once all the elements of the decision-making environment are taken into account, reacting to sunk costs can often be understood as rational behavior". ("JEL" D0, D01, D8, D81, D83, D9, D90) Copyright (c) 2009 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 48 (2010)
Issue (Month): 2 (04)
Pages: 323-336

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Handle: RePEc:bla:ecinqu:v:48:y:2010:i:2:p:323-336

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Cited by:
  1. J. Atsu Amegashie & Marco Runkel, 2012. "The Paradox of Revenge in Conflicts," Journal of Conflict Resolution, Peace Science Society (International), vol. 56(2), pages 313-330, April.
  2. Borland, Jeff & Lee, Leng & Macdonald, Robert D., 2011. "Escalation effects and the player draft in the AFL," Labour Economics, Elsevier, vol. 18(3), pages 371-380, June.
  3. Bigoni, Maria & Fridolfsson, Sven-Olof & Le Coq, Chloé & Spagnolo, Giancarlo, 2009. "Fines, Leniency and Rewards in Antitrust: an Experiment," CEPR Discussion Papers 7417, C.E.P.R. Discussion Papers.
  4. Jean Guillaume Forand, 2010. "Keeping Your Options Open," RCER Working Papers 557, University of Rochester - Center for Economic Research (RCER).
  5. Amegashie, J. Atsu & Runkel, Marco, 2008. "The Desire for Revenge and the Dynamics of Conflicts," MPRA Paper 6746, University Library of Munich, Germany.

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