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Searching for the Sunk Cost Fallacy

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Author Info

  • Daniel Friedman

    (UC Santa Cruz)

  • Kai Pommerenke

    (UC Santa Cruz)

  • Rajan Lukose

    (HP Labs)

  • Garret Milam

    (UC Santa Cruz)

  • Bernardo A. Huberman

    (HP Labs)

Abstract

We seek to isolate in the laboratory factors that encourage and discourage the sunk cost fallacy. Subjects play a computer game in which they decide whether to keep digging for treasure on an island or to sink a cost (which will turn out to be either high or low) to move to another island. The research hypothesis is that subjects will stay longer on islands that were more costly to find. Nine treatment variables are considered, e.g. alternative visual displays, whether the treasure value of an island is shown on arrival or discovered by trial and error, and alternative parameters for sunk costs. The data reveal a surprisingly small and erratic sunk cost effect that is generally insensitive to the proposed psychological drivers.

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File URL: http://128.118.178.162/eps/exp/papers/0407/0407007.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Experimental with number 0407007.

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Length: 30 pages
Date of creation: 29 Jul 2004
Date of revision:
Handle: RePEc:wpa:wuwpex:0407007

Note: Type of Document - pdf; pages: 30
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Web page: http://128.118.178.162

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Keywords: sunk cost fallacy;

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References

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Citations

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Cited by:
  1. James C. Cox & Daniel T. Hall, 2010. "Trust with Private and Common Property: Effects of Stronger Property Right Entitlements," Games, MDPI, Open Access Journal, vol. 1(4), pages 527-550, November.
  2. Philipp C. Wichardt & Daniel Schunk & Patrick W. Schmitz, 2008. "Participation costs for responders can reduce rejection rates in ultimatum bargaining," IEW - Working Papers 398, Institute for Empirical Research in Economics - University of Zurich.
  3. Ketel, Nadine & Linde, Jona & Oosterbeek, Hessel & van der Klaauw, Bas, 2014. "Tuition Fees as a Commitment Device," IZA Discussion Papers 7951, Institute for the Study of Labor (IZA).
  4. Nava Ashraf & James Berry & Jesse M. Shapiro, 2007. "Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia," NBER Working Papers 13247, National Bureau of Economic Research, Inc.
  5. Pierre Blanchard & Jean-Pierre Huiban & Claude Mathieu, 2012. "The determinants of firm exit in the French food industries," Post-Print hal-00939376, HAL.
  6. Sheremeta, Roman M., 2010. "Experimental comparison of multi-stage and one-stage contests," Games and Economic Behavior, Elsevier, vol. 68(2), pages 731-747, March.
  7. Buchheit, Steve & Feltovich, Nick, 2010. "Experimental evidence of a sunk–cost paradox: a study of pricing behavior in Bertrand–Edgeworth duopoly," SIRE Discussion Papers 2010-124, Scottish Institute for Research in Economics (SIRE).
  8. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.
  9. Cary Deck & Roman M. Sheremeta, 2012. "Fight or Flight?," Journal of Conflict Resolution, Peace Science Society (International), vol. 56(6), pages 1069-1088, December.
  10. Ferdinand M. Vieider, 2008. "Separating Real Incentives and Accountability," Tinbergen Institute Discussion Papers 08-055/1, Tinbergen Institute.
  11. 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.
  12. X. Wang & Bill Yang, 2010. "The sunk-cost effect and optimal two-part pricing," Journal of Economics, Springer, vol. 101(2), pages 133-148, October.
  13. Sheremeta, Roman, 2009. "Essays on Experimental Investigation of Lottery Contests," MPRA Paper 49888, University Library of Munich, Germany.
  14. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.
  15. Doğan, Gönül & van Assen, Marcel & Potters, Jan, 2013. "The effect of link costs on simple buyer–seller networks," Games and Economic Behavior, Elsevier, vol. 77(1), pages 229-246.

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