PDF
FLIP
XML
How to Cite
Tait, V., & Miller, H. L. (2019). Loss Aversion as a Potential Factor in the Sunk-Cost Fallacy. International Journal of Psychological Research, 12(2), 8–16. https://doi.org/10.21500/20112084.3951
More Citation Formats
License terms
▼
The work that is sent to this journal must be original, not published or sent to be published elsewhere; and if it is accepted for publication, authors will agree to transfer copyright to International Journal of Psychological Research.
To give up copyright, the authors allow that, International Journal of Psychological Research, distribute the work more broadly, check for the reuse by others and take care of the necessary procedures for the registration and administration of copyright; at the same time, our editorial board represents the interests of the author and allows authors to re-use his work in various forms. In response to the above, authors transfer copyright to the journal, International Journal of Psychological Research. This transfer does not imply other rights which are not those of authorship (for example those that concern about patents). Likewise, preserves the authors rights to use the work integral or partially in lectures, books and courses, as well as make copies for educational purposes. Finally, the authors may use freely the tables and figures in its future work, wherever make explicit reference to the previous publication in International Journal of Psychological Research. The assignment of copyright includes both virtual rights and forms of the article to allow the editorial to disseminate the work in the manner which it deems appropriate.
The editorial board reserves the right of amendments deemed necessary in the application of the rules of publication.
To give up copyright, the authors allow that, International Journal of Psychological Research, distribute the work more broadly, check for the reuse by others and take care of the necessary procedures for the registration and administration of copyright; at the same time, our editorial board represents the interests of the author and allows authors to re-use his work in various forms. In response to the above, authors transfer copyright to the journal, International Journal of Psychological Research. This transfer does not imply other rights which are not those of authorship (for example those that concern about patents). Likewise, preserves the authors rights to use the work integral or partially in lectures, books and courses, as well as make copies for educational purposes. Finally, the authors may use freely the tables and figures in its future work, wherever make explicit reference to the previous publication in International Journal of Psychological Research. The assignment of copyright includes both virtual rights and forms of the article to allow the editorial to disseminate the work in the manner which it deems appropriate.
The editorial board reserves the right of amendments deemed necessary in the application of the rules of publication.
Abstract
The sunk-cost fallacy (SCF) occurs when an individual makes an investment with a low probability of a payoff because an earlier investment was made. The investments may be time, effort, or money. Previous researchers showed that larger prior investments were more likely to lead to the SCF than lower investments were, though little research has been focused on comparing investment types. There are several theories of the SCF, but few have implicated loss aversion, the higher sensitivity to losses than to gains, as a potential factor. We studied the differential effects of investment amount and type on the occurrence of the SCF and explored loss aversion as a potential explanation of these differences. There were 168 participants, who completed a sunk-cost task as well as an endowment-effect task, which was a measure of loss aversion. A 3×3 mixed-design ANCOVA was used in which the SCF score was the dependent variable and loss-aversion scores were used as a covariate. The SCF occurred most often with money, less with time, and least with effort. Loss aversion displayed a weak negative relation to the SCF.
Keywords:
References
Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational behavior and human decision processes, 35 (1), 124–140. doi:10.1016/0749-5978(85)90049-4.
Bornstein, B. H., & Chapman, G. B. (1995). Learning lessons from sunk costs. Journal of Experimental Psychology: Applied, 1 (4), 251.
Gächter, S., Johnson, E. J., & Herrmann, A. (2007). Individual-level loss aversion in riskless and risky choices. IZA Discussion Paper 2961, 25 pp. Available at SSRN: https://ssrn.com/abstract=1010597.
Garland, H., & Newport, S. (1991). Effects of absolute and relative sunk costs on the decision to persist with a course of action. Organizational behavior and human decision processes, 48 (1), 55–69. doi:10.1016/0749-5978(91)90005-E.
Gigerenzer, G. (2008). Gut feelings: The intelligence of the unconscious. New York, NY: Penguin Books.
Grieve, A. (1984). Test of sphericity of normal distributions and the analysis of repeated measures designs. Psychometrika, 49 (2), 257–267. doi:10.1007/BF02294176.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decisions under risk. Econometrica, 47, 278.
Klaczynski, P. A., & Cottrell, J. M. (2004). A dualprocess approach to cognitive development: The case of children’s understanding of sunk cost decisions. Thinking & Reasoning, 10 (2), 147–174. doi:10.1080/13546780442000042.
Navarro, A. (2008). The sunk cost effect of time: An exploration and an explanation. Dissertation Abstracts International, 68, 7651. doi:10.1901/jeab.2005.21-04.
Navarro, A., & Fantino, E. (2005). The sunk cost effect in pigeons and humans. Journal of the experimental analysis of behavior, 83 (1), 1–13.
Rheinheimer, D. (1999). The effects on type i error rate and power of the ancova f-test and selected alternatives under non-normality and variance heterogeneity. Dissertation Abstracts International, 49 (2), 2407.
Soman, D. (2001). The mental accounting of sunk time costs: Why time is not like money. Journal of Behavioral Decision Making, 14 (3), 169–185. doi:10.1002/bdm.370.
Soman, D. (2004). Framing, loss aversion, and mental accounting. Blackwell handbook of judgment and decision making, 379–398. doi:10.1002/9780470752937.ch19.
Staw, B. M. (1976). Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Organizational behavior and human performance, 16 (1), 27–44. doi:10.1016/0030-5073(76)90005-2.
Staw, B. M., & Fox, F. V. (1977). Escalation: The determinants of commitment to a chosen course of action. Human Relations, 30 (5), 431–450. doi:10.1177/001872677703000503.
Staw, B. M., & Ross, J. (1978). Commitment to a policy decision: A multi-theoretical perspective. Administrative science quarterly, 23 (1), 40–64. doi:10.2307/2392433.
Strough, J., Mehta, C. M., McFall, J. P., & Schuller, K. L. (2008). Are older adults less subject to the sunk-cost fallacy than younger adults? Psychological Science, 19 (7), 650–652. doi:10.1111/j.1467-9280.2008.02138.x.
Strough, J., Schlosnagle, L., Karns, T., Lemaster, P., & Pichayayothin, N. (2014). No time to waste: Restricting life-span temporal horizons decreases the sunk-cost fallacy. Journal of Behavioral Decision Making, 27 (1), 78–94. doi:10.1002/bdm.1781.
Sweis, B. M., Abram, S. V., Schmidt, B. J., Seeland, K. D., MacDonald, A. W., Thomas, M. J., & Redish, A. D. (2018). Sensitivity to “sunk costs” in mice, rats, and humans. Science, 361 (6398), 178–181. doi:10.1126/science.aar8644
Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1, 39–60.
Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. New Haven, CT: Yale University Press.
Vasconcelos, M. (2019). The road ahead for sunk costs. Learning & behavior. doi: 10.3758/s13420-019-00375-8.
Volpp, K. G., John, L. K., Troxel, A. B., Norton, L., Fassbender, J., & Loewenstein, G. (2008). Financial incentive–based approaches for weight loss: a randomized trial. Jama: Journal of the American Medical Association, 300(22), 2631–2637.
Whyte, G. (1986). Escalating commitment to a course of action: A reinterpretation. The Academy of management review, 11 (2), 311–321. doi:10.2307/258462.
Zeng, J., Zhang, Q., Chen, C., Yu, R., & Gong, Q. (2013). An fmri study on sunk cost effect. Brain research, 1519, 63–70. doi:10.1016/j.brainres.2013.05.001.
Bornstein, B. H., & Chapman, G. B. (1995). Learning lessons from sunk costs. Journal of Experimental Psychology: Applied, 1 (4), 251.
Gächter, S., Johnson, E. J., & Herrmann, A. (2007). Individual-level loss aversion in riskless and risky choices. IZA Discussion Paper 2961, 25 pp. Available at SSRN: https://ssrn.com/abstract=1010597.
Garland, H., & Newport, S. (1991). Effects of absolute and relative sunk costs on the decision to persist with a course of action. Organizational behavior and human decision processes, 48 (1), 55–69. doi:10.1016/0749-5978(91)90005-E.
Gigerenzer, G. (2008). Gut feelings: The intelligence of the unconscious. New York, NY: Penguin Books.
Grieve, A. (1984). Test of sphericity of normal distributions and the analysis of repeated measures designs. Psychometrika, 49 (2), 257–267. doi:10.1007/BF02294176.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decisions under risk. Econometrica, 47, 278.
Klaczynski, P. A., & Cottrell, J. M. (2004). A dualprocess approach to cognitive development: The case of children’s understanding of sunk cost decisions. Thinking & Reasoning, 10 (2), 147–174. doi:10.1080/13546780442000042.
Navarro, A. (2008). The sunk cost effect of time: An exploration and an explanation. Dissertation Abstracts International, 68, 7651. doi:10.1901/jeab.2005.21-04.
Navarro, A., & Fantino, E. (2005). The sunk cost effect in pigeons and humans. Journal of the experimental analysis of behavior, 83 (1), 1–13.
Rheinheimer, D. (1999). The effects on type i error rate and power of the ancova f-test and selected alternatives under non-normality and variance heterogeneity. Dissertation Abstracts International, 49 (2), 2407.
Soman, D. (2001). The mental accounting of sunk time costs: Why time is not like money. Journal of Behavioral Decision Making, 14 (3), 169–185. doi:10.1002/bdm.370.
Soman, D. (2004). Framing, loss aversion, and mental accounting. Blackwell handbook of judgment and decision making, 379–398. doi:10.1002/9780470752937.ch19.
Staw, B. M. (1976). Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Organizational behavior and human performance, 16 (1), 27–44. doi:10.1016/0030-5073(76)90005-2.
Staw, B. M., & Fox, F. V. (1977). Escalation: The determinants of commitment to a chosen course of action. Human Relations, 30 (5), 431–450. doi:10.1177/001872677703000503.
Staw, B. M., & Ross, J. (1978). Commitment to a policy decision: A multi-theoretical perspective. Administrative science quarterly, 23 (1), 40–64. doi:10.2307/2392433.
Strough, J., Mehta, C. M., McFall, J. P., & Schuller, K. L. (2008). Are older adults less subject to the sunk-cost fallacy than younger adults? Psychological Science, 19 (7), 650–652. doi:10.1111/j.1467-9280.2008.02138.x.
Strough, J., Schlosnagle, L., Karns, T., Lemaster, P., & Pichayayothin, N. (2014). No time to waste: Restricting life-span temporal horizons decreases the sunk-cost fallacy. Journal of Behavioral Decision Making, 27 (1), 78–94. doi:10.1002/bdm.1781.
Sweis, B. M., Abram, S. V., Schmidt, B. J., Seeland, K. D., MacDonald, A. W., Thomas, M. J., & Redish, A. D. (2018). Sensitivity to “sunk costs” in mice, rats, and humans. Science, 361 (6398), 178–181. doi:10.1126/science.aar8644
Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1, 39–60.
Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. New Haven, CT: Yale University Press.
Vasconcelos, M. (2019). The road ahead for sunk costs. Learning & behavior. doi: 10.3758/s13420-019-00375-8.
Volpp, K. G., John, L. K., Troxel, A. B., Norton, L., Fassbender, J., & Loewenstein, G. (2008). Financial incentive–based approaches for weight loss: a randomized trial. Jama: Journal of the American Medical Association, 300(22), 2631–2637.
Whyte, G. (1986). Escalating commitment to a course of action: A reinterpretation. The Academy of management review, 11 (2), 311–321. doi:10.2307/258462.
Zeng, J., Zhang, Q., Chen, C., Yu, R., & Gong, Q. (2013). An fmri study on sunk cost effect. Brain research, 1519, 63–70. doi:10.1016/j.brainres.2013.05.001.
Downloads
Download data is not yet available.
Cited by
