Sunk cost in investment decisions

Marcello Negrini, Arno Riedl and Matthias Wibral

Journal of Economic Behavior & Organization, 2022, vol. 200, issue C, 1105-1135

Abstract: We experimentally investigate the effect of sunk cost in a two-stage investment continuation task. After an initial investment, participants have to decide whether or not to continue the project with an additional investment. We do not find a standard sunk cost bias, but observe a robust reverse sunk cost effect: the larger the initial investment, the lower the likelihood to continue investing. This holds despite the fact that we replicate the standard sunk cost bias in hypothetical scenarios. We argue that both, risk aversion without asset integration and loss aversion can account for the reverse sunk cost effect.

Keywords: Sunk cost bias; Incentivized experiment; Hypothetical scenario; Cognitive dissonance; Loss aversion; Waste aversion (search for similar items in EconPapers)
JEL-codes: C91 D01 D90 D91 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:200:y:2022:i:c:p:1105-1135

DOI: 10.1016/j.jebo.2022.06.028

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