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Evaluating the Sunk Cost Effect

David Ronayne (), Daniel Sgroi and Anthony Tuckwell ()
Additional contact information
David Ronayne: European School of Management and Technology (ESMT)
Anthony Tuckwell: University of Warwick

No 14257, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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; 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; randomized controlled trial; online experiment; online survey; psychological scales; scale validation; Raven’s progressive matrices; international cognitive ability resource; cognitive reflection test; openness (search for similar items in EconPapers)
JEL-codes: C83 C90 D91 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-04
New Economics Papers: this item is included in nep-cbe, nep-cwa, nep-exp and nep-ore
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Citations: View citations in EconPapers (1) Track citations by RSS feed

Published - published in: Journal of Economic Behavior & Organization, 2021, 186, 318 - 327

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Journal Article: Evaluating the sunk cost effect (2021) Downloads
Working Paper: Evaluating the Sunk Cost Effect (2020) Downloads
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