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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)

Additional information is available for the following registered author(s):

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://129.3.20.41/eps/exp/papers/0407/0407008.pdf
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Publisher Info
Paper provided by EconWPA in its series Experimental with number 0407008.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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://129.3.20.41

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Related research
Keywords: sunk cost fallacy; experimental economics;

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Find related papers by JEL classification:
C9 - Mathematical and Quantitative Methods - - Design of Experiments

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Lorne Carmichael & W. Bentley MacLeod, 2003. "Caring About Sunk Costs: A Behavioral Solution to Holdup Problems with Small Stakes," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 106-118, April.
  2. Theo Offerman & Jan Potters, 2006. "Does Auctioning of Entry Licences Induce Collusion? An Experimental Study," Review of Economic Studies, Blackwell Publishing, vol. 73(3), pages 769-791, 07. [Downloadable!] (restricted)
  3. Garland, Howard & Newport, Stephanie, 1991. "Effects of absolute and relative sunk costs on the decision to persist with a course of action," Organizational Behavior and Human Decision Processes, Elsevier, vol. 48(1), pages 55-69, February. [Downloadable!] (restricted)
  4. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Oxford University Press, vol. 19(1), pages 1-25, January.
  5. Hey, John D., 1982. "Search for rules for search," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 65-81, March. [Downloadable!] (restricted)
  6. Camerer, Colin F. & Weber, Roberto A., 1999. "The econometrics and behavioral economics of escalation of commitment: a re-examination of Staw and Hoang's NBA data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(1), pages 59-82, May. [Downloadable!] (restricted)
  7. Northcraft, Gregory B. & Neale, Margaret A., 1986. "Opportunity costs and the framing of resource allocation decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 37(3), pages 348-356, June. [Downloadable!] (restricted)
  8. Sonnemans, Joep, 1998. "Strategies of search," Journal of Economic Behavior & Organization, Elsevier, vol. 35(3), pages 309-332, April. [Downloadable!] (restricted)
  9. Heath, Chip, 1995. "Escalation and De-escalation of Commitment in Response to Sunk Costs: The Role of Budgeting in Mental Accounting," Organizational Behavior and Human Decision Processes, Elsevier, vol. 62(1), pages 38-54, April. [Downloadable!] (restricted)
  10. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  11. Cox, James C & Oaxaca, Ronald L, 1992. "Direct Tests of the Reservation Wage Property," Economic Journal, Royal Economic Society, vol. 102(415), pages 1423-32, November. [Downloadable!] (restricted)
  12. Hey, John D., 1987. "Still searching," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 137-144, March. [Downloadable!] (restricted)
  13. Parayre, Roch, 1995. "The strategic implications of sunk costs: A behavioral perspective," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 417-442, December. [Downloadable!] (restricted)
  14. Camerer, Colin F. & Weber, Roberto A., 1998. "The Econometrics and Behavioral Economics of Escalation of Commitment: A Re-examination of Staw and Hoang's NBA Data," Working Papers 1043, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  15. Harrison, Glenn W & Morgan, Peter, 1990. "Search Intensity in Experiments," Economic Journal, Royal Economic Society, vol. 100(401), pages 478-86, June. [Downloadable!] (restricted)
  16. Meyer, Donald J., 1993. "First price auctions with entry: An experimental investigation," The Quarterly Review of Economics and Finance, Elsevier, vol. 33(2), pages 107-122. [Downloadable!] (restricted)
  17. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  18. Sonnemans, Joep, 2000. "Decisions and strategies in a sequential search experiment," Journal of Economic Psychology, Elsevier, vol. 21(1), pages 91-102, February. [Downloadable!] (restricted)
  19. Cox, James C & Oaxaca, Ronald L, 1989. " Laboratory Experiments with a Finite-Horizon Job-Search Model," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 301-29, September.
  20. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February. [Downloadable!] (restricted)
  21. 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. [Downloadable!] (restricted)
  22. Kogut, Carl A., 1990. "Consumer search behavior and sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 381-392, December. [Downloadable!] (restricted)
  23. Whyte, Glen, 1993. "Escalating Commitment in Individual and Group Decision Making: A Prospect Theory Approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 54(3), pages 430-455, April. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Philipp C. Wichardt & Daniel Schunk & Patrick W. Schmitz, 2008. "Participation costs for responders can reduce rejection rates in ultimatum bargaining," IEW - Working Papers iewwp398, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  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. [Downloadable!] (restricted)
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