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Searching for the Sunk Cost Fallacy

Author

Listed:
  • 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.

Suggested Citation

  • Daniel Friedman & Kai Pommerenke & Rajan Lukose & Garret Milam & Bernardo A. Huberman, 2004. "Searching for the Sunk Cost Fallacy," Experimental 0407008, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpex:0407008
    Note: Type of Document - pdf; pages: 30
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    References listed on IDEAS

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    More about this item

    Keywords

    sunk cost fallacy; experimental economics;

    JEL classification:

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

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