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Searching for the Sunk Cost Fallacy

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Author Info

  • Daniel Friedman

    (University of California, Santa Cruz)

  • Kai Pommerenke

    (University of California, Santa Cruz)

  • Rajan Lukose

    (HP Labs)

  • Garret Milam

    (University of California, 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/0407/0407008.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Experimental with number 0407008.

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Length: 30 pages
Date of creation: 29 Jul 2004
Date of revision:
Handle: RePEc:wpa:wuwpex:0407008

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

Related research

Keywords: sunk cost fallacy; experimental economics;

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References

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  1. Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
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  15. Tan, Hun-Tong & Yates, J. Frank, 1995. "Sunk Cost Effects: The Influences of Instruction and Future Return Estimates," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(3), pages 311-319, September.
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Citations

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Cited by:
  1. Deck, Cary & Sheremeta, Roman, 2012. "Fight or Flight?," MPRA Paper 52130, University Library of Munich, Germany.
  2. 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.
  3. Ketel, Nadine & Linde, Jona & Oosterbeek, Hessel & van der Klaauw, Bas, 2014. "Tuition fees as a commitment device," CEPR Discussion Papers 9862, C.E.P.R. Discussion Papers.
  4. 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.
  5. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.
  6. Pierre Blanchard & Jean-Pierre Huiban & Claude Mathieu, 2012. "The determinants of firm exit in the French food industries," Post-Print hal-00939376, HAL.
  7. Sheremeta, Roman, 2009. "Experimental Comparison of Multi-Stage and One-Stage Contests," MPRA Paper 49884, University Library of Munich, Germany.
  8. Ferdinand M. Vieider, 2008. "Separating Real Incentives and Accountability," Tinbergen Institute Discussion Papers 08-055/1, Tinbergen Institute.
  9. Sheremeta, Roman, 2009. "Essays on Experimental Investigation of Lottery Contests," MPRA Paper 49888, University Library of Munich, Germany.
  10. 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.
  11. Steve Buchheit & Nick Feltovich, 2011. "Experimental Evidence Of A Sunk‐Cost Paradox: A Study Of Pricing Behavior In Bertrand–Edgeworth Duopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 317-347, 05.
  12. 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.
  13. 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.
  14. 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.
  15. Pedro Robalo & Rei S. Sayag, 2012. "Information at a Cost: A Lab Experiment," Tinbergen Institute Discussion Papers 12-143/VII, Tinbergen Institute.

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