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Searching for the sunk cost fallacy

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  • Daniel Friedman
  • Kai Pommerenke
  • Rajan Lukose
  • Garrett Milam
  • Bernardo Huberman

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. Eleven 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 sunk cost effect that is generally insensitive to the proposed psychological drivers. Copyright Economic Science Association 2007

Suggested Citation

  • Daniel Friedman & Kai Pommerenke & Rajan Lukose & Garrett Milam & Bernardo Huberman, 2007. "Searching for the sunk cost fallacy," Experimental Economics, Springer;Economic Science Association, vol. 10(1), pages 79-104, March.
  • Handle: RePEc:kap:expeco:v:10:y:2007:i:1:p:79-104
    DOI: 10.1007/s10683-006-9134-0
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    More about this item

    Keywords

    Sunk costs; Sunk cost fallacy; Search; Self-justification; Loss aversion;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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