Evaluating the Sunk Cost Effect
David Ronayne (),
Daniel Sgroi and
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Anthony Tuckwell: University of Warwick, ESRC CAGE Centre and the Alan Turing Institute
CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)
We provide experimental evidence of behavior consistent with the sunk cost effect. Subjects who earned a lottery via a real-effort task were given an opportunity to switch to a dominant lottery; yet 23% chose to stick with their dominated lottery. The endowment effect accounts for roughly only one third of the effect. Subjects’ capacity for cognitive reflection is a significant determinant of sunk cost behavior. We also find stocks of knowledge or experience (crystallized intelligence) predict sunk cost behavior, rather than algorithmic thinking (fluid intelligence) or the personality trait of openness. We construct and validate a scale, the “SCE-8”, which encompasses many resources individuals can spend, and offers researchers an efficient way to measure susceptibility to the sunk cost effect.
Keywords: sunk cost effect; sunk cost fallacy; endowment effect; cognitive ability; fluid intelligence; crystallized intelligence; reflective thinking; online experiment; online survey; psychological scales; scale validation; Raven’s progressive matrices; international cognitive ability resource; cognitive reflection test; openness. JEL Classification: D91; C83; C90 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-neu
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https://warwick.ac.uk/fac/soc/economics/research/c ... tions/wp475.2020.pdf
Journal Article: Evaluating the sunk cost effect (2021)
Working Paper: Evaluating the Sunk Cost Effect (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:475
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