Sunk Cost Theory
Olivola (2017) Interpersonal Sunk Cost
Carried out eight experiments involving different personal and interpersonal sunk-cost scenarios. Across eight experiments representing a wide variety of scenarios adapted from the classic sunk-cost literature, I repeatedly observed a sunk-cost effect when the person incurring the cost was someone other than the decision-maker. Moreover, this occurred even when that person would not observe whether the decision-maker honored his/her sunk-cost , suggesting that social desirability is not a key driver. And it occurred even when that other person was not close to the decision-maker suggesting that social closeness is not a key moderator. It is also worth noting that the interpersonal sunk-cost effect was almost as likely to be larger as it was to be smaller than the intrapersonal sunk- cost effect, in terms effect size and ability to shape preferences. Thus, the interpersonal sunk-cost effect is neither a 'diluted' nor 'enhanced' version of the classic intrapersonal variant.
Arkes and Blumer, 1985 the Psychology of Sunk Cost, Experiment 3= Airplane Rating
After answering the question proposed by both scenarios, participants were asked to rank on a scale of 0 to 100 the chance of financial success they anticipated for the plane. In the first scenario, participants probability estimate was 41, while the second scenario subject's probability estimate was 34.0. As demonstrated here, people in the sunk cost scenario anticipated higher success for the plane.
Experiment 2, Arkes and Blumer 1985, Theatre Discounts
Experimenters provided discounts to people who bought season tickets to a campus theatre group at Ohio University. predicted that those who paid less for the ability to see as many plays as they liked would choose fewer plays to see compared to those who paid more, because those who paid more would have a greater sunk cost. People who paid full price saw the most amount of plays across the board. Furthermore, Full Price payers saw the first 5 play in greater frequency and the second 5 plays in greater frequency than any other group. People who paid 13 dollars saw 3.32 of the first 5 plays on average and saw significant drop in attendance in the second 5 plays seeing on average 1.84 plays. People who paid 8 dollars saw 3.29 of the first 5 plays on average and saw a less significant drop in attendance in the second 5 plays seeing on average 2.18 plays. Here, the price of a ticket affected whether or not a participant would do something AFTER they bought it.
Arkes and Blumer et al 1985: Ski trip, Manipulate personal involvement
Experiments manipulated the level of personal involvement in the Ski Trip Dillema and found that the more personal involvement, the greater the effects of sunk cost. In this scenario, participants did not pay for the trips, but had the opportunity to go an a free ski trip to either Wisconsin (Valued at 50$) or Michigan (Valued at 100). In this scenario, 44 participants chose the 100$ trip and 42 chose the 50$ trip, bring the distribution close to 50/50
Arkes and Blumer et al 1985 Ski Trip Scenario: OG
In 1985, Arkes and Blumer conducted a questoinare study where participants had to reconcile a hypothetical scenario where: you have spent 100$ on a ski trip to Michigan and later buy a 50$ ticket for a ski trip in Wisconsin. You know you will enjoy the Wisconsin trip more than the Michigan trip, but unfortunately, you realize you booked these trips for the same weekend. When asked which trip they would go on, over half of participants said they would go on the Michigan trip even though they knew they would enjoy it less. Traditional Economic theory argues that decisions should based on the benefits anticipated to arise from a choice. According to this axiom, people should choose the Wisconsin Trip, because it was considered to have more benefits by the decision maker. Clearly, sunk cost is influencing the respondent's choice.
Arkes and Blumer, 1985 the Psychology of Sunk Cost, Experiment 3= Airplane
Participants tasked to reconcile a hypothetical scenario: You are the president of an airline company and have invested 10 million dollars in a research project to build a plane not detected by conventional radar. Once the project was 90% complete, another firm begins marketing a plane that cannot be detected by radar. It is apparent that their plane is much faster and far more economical Thant the plane your company is building. Should you invest the last 10% in the plane? Yes:41 No:7 When asked the same question without a sunk cost: Your employee suggests that you use the last 1 million of your research funds to develop a radar blank plane. However, another firm has just begun marketing a plane of this type. It is apparent that their plane is much faster and economical than the plane you company could build. Should you invest the last million dollars? Yes 10 No 50
Soman, 2001: Internship- Mental Accounting of sunk cost compared time shows that:
People honor sunk cost in terms of money but not time Students were interning for course credit, and were randomly assigned to either the sunk time or sunk cost scenario. Literature professor looking for research assistant to work for 15 hours in exchange for a seat at professional theatre and a Music Professor looking for 5 hours a week and paid for ticket to a rock concert of a band you like. You work for both professors and it turns out they are at the same time. Have to choose between tickets. --Most choose to attend the rock concert Theatre performance [4.8] Rock Concert [95.2] In the sunk money version of the experiment, subjects in the second version were told that they purchased the theater ticket for 450 and the rock ticket for 150 and the rest of the situation was not changed. If individual ignored the sunk-cost, then they should gravitate toward the rock concert. f sunk cost is a contributing factor, participants should gravitate toward choosing the theatre performance. Theater performance [61.70] Rock Concert [38.3] Sunk Cost was more influential for more than half of participants
Sunk Cost effect in committed relationships? Rego, S., Arantes, J., & Magalhães, P. (2018);
The aim of the present paper was to study the role of the sunk cost effect in committed relationships. In Experiment 1, participants (N = 902) were presented with an unhappy relationship scenario in which they needed to make a choice: to stay or end the relationship. Results showed that the likelihood of participants staying in the relationship was higher when money and effort, but not time, had been previously invested in that relationship. In Experiment 2, the time investment was manipulated and the sunk cost was evaluated using a different methodology. Specifically, instead of having a dichotomous decision, participants (N = 275) choose how much time they would be willing to invest in the relationship. Results revealed a sunk time effect, that is, participants were willing to invest more time in a relationship in which more time had already been invested.
sunk cost fallacy
a framing effect in which people make decisions about a current situation based on what they have previously invested in the situation. People are less likely to accept a loss once a significant amount of time, energy or money has been made.