Do Sunk Costs Matter?
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 InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 48 (2010)
Issue (Month): 2 (04)
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Find related papers by JEL classification:
- D0 - Microeconomics - - General
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D9 - Microeconomics - - Intertemporal Choice
- D90 - Microeconomics - - Intertemporal Choice - - - General
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