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Do Sunk Costs Matter?




"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.

Suggested Citation

  • R. Preston Mcafee & Hugo M. Mialon & Sue H. Mialon, 2010. "Do Sunk Costs Matter?," Economic Inquiry, Western Economic Association International, vol. 48(2), pages 323-336, April.
  • Handle: RePEc:bla:ecinqu:v:48:y:2010:i:2:p:323-336

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    References listed on IDEAS

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    2. Mariasole Bannò & Enrico Zaninotto, 2016. "Commited to learn: come le pmi imparano ad esportare. una analisi di casi aziendali," MERCATI E COMPETITIVITÀ, FrancoAngeli Editore, vol. 2016(2), pages 113-141.
    3. Mukesh Eswaran & Hugh M. Neary, 2016. "The Evolutionary Logic Of Honoring Sunk Costs," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 835-846, April.
    4. Berg, Joyce E. & Dickhaut, John W. & Kanodia, Chandra, 2009. "The role of information asymmetry in escalation phenomena: Empirical evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 135-147, February.
    5. Andreas Ortmann & Leonidas Spiliopoulos, 2017. "The beauty of simplicity? (Simple) heuristics and the opportunities yet to be realized," Chapters,in: Handbook of Behavioural Economics and Smart Decision-Making, chapter 7, pages 119-136 Edward Elgar Publishing.
    6. Forand, Jean Guillaume, 2015. "Keeping your options open," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 47-68.
    7. 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.
    8. Ho, Teck Hua & Png, Ivan P. L. & Reza, Sadat, 2017. "Sunk Cost Fallacy in Driving the World's Costliest Cars," MPRA Paper 82139, University Library of Munich, Germany.
    9. Bigoni, Maria & Fridolfsson, Sven-Olof & Le Coq, Chloé & Spagnolo, Giancarlo, 2008. "Fines, Leniency and Rewards in Antitrust: An Experiment," Working Paper Series 738, Research Institute of Industrial Economics, revised 06 Aug 2009.
    10. Ming Jia & Zhe Zhang, 2014. "How Does the Stock Market Value Corporate Social Performance? When Behavioral Theories Interact with Stakeholder Theory," Journal of Business Ethics, Springer, vol. 125(3), pages 433-465, December.
    11. H. Schmale & T. Ehrmann & A. Dilger, 2013. "Buying without using -- biases of German BahnCard buyers," Applied Economics, Taylor & Francis Journals, vol. 45(7), pages 933-941, March.
    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. Robert Bordley & Marco LiCalzi & Luisa Tibiletti, 2014. "A target-based foundation for the "hard-easy effect" bias," Working Papers 23, Department of Management, Università Ca' Foscari Venezia.
    14. Amegashie, J. Atsu & Runkel, Marco, 2008. "The Desire for Revenge and the Dynamics of Conflicts," MPRA Paper 6746, University Library of Munich, Germany.
    15. Mario Ferrero, 2016. "Jesus and the Ratchet," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 33(1), pages 173-195, August.

    More about this item

    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; Information and Knowledge; Communication; Belief; Unawareness
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General


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