To the Depths of the Sunk Cost: Experiments Revisiting the Elusive Effect

George Beknazar-Yuzbashev, Sota Ichiba and Mateusz Stalinski
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George Beknazar-Yuzbashev: Columbia University
Sota Ichiba: Tilburg University
Mateusz Stalinski: University of Warwick & CAGE

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Despite being often discussed both in practice and academic circles, the sunk cost effect remains empirically elusive. Our model based on reference point dependence suggests that the traditional way of testing it—by assigning discounts—may not produce the desired effect. Motivated by this, we evaluate it across the gain-loss divide in two preregistered experiments. In an online study, we randomize the price (low, medium, or high) of a ticket to enter a real-effort task and observe its effect on play time. Despite varying the sunk cost by $2 for a 14-minute task and the sample size of N=1,806, we detect only a small effect (0.09 SD or 1.1 minutes). We further explore the economic applications of the effect in a field experiment on YouTube with N=11,328 videos in which we randomize whether the time until a pre-video ad becomes skippable is shortened (0 s), default (5 s), or extended (10 s). The intervention has an overall insignificant effect on video engagement. This is driven by a sizable negative effect on the extensive margin, a channel which is not present in the online study. Specifically, more users leave before the video starts in the extended treatment (5.2 pp. or 28% more relative to the shortened treatment). Taking the results of both studies together, we offer a cautionary tale that applying even the most intuitive behavioral effects in policy settings can prove challenging. JEL Codes: C91 ; C93 ; D04 ; D11 ; D12 ; D90 ; M31 ; M37

Keywords: sunk cost; sunk cost fallacy; loss aversion; mental accounting; regret; digital platforms (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1544

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