Friday, May 11, 2018

The sunk-cost fallacy—pursuing an inferior alternative merely because we have previously invested significant, but nonrecoverable, resources in it—, a striking violation of rational decision making, can appear when costs are borne by someone other than the decision maker

The Interpersonal Sunk-Cost Effect. Christopher Y. Olivola. Psychological Science, https://doi.org/10.1177/0956797617752641

Abstract: The sunk-cost fallacy—pursuing an inferior alternative merely because we have previously invested significant, but nonrecoverable, resources in it—represents a striking violation of rational decision making. Whereas theoretical accounts and empirical examinations of the sunk-cost effect have generally been based on the assumption that it is a purely intrapersonal phenomenon (i.e., solely driven by one’s own past investments), the present research demonstrates that it is also an interpersonal effect (i.e., people will alter their choices in response to other people’s past investments). Across eight experiments (N = 6,076) covering diverse scenarios, I documented sunk-cost effects when the costs are borne by someone other than the decision maker. Moreover, the interpersonal sunk-cost effect is not moderated by social closeness or whether other people observe their sunk costs being “honored.” These findings uncover a previously undocumented bias, reveal that the sunk-cost effect is a much broader phenomenon than previously thought, and pose interesting challenges for existing accounts of this fascinating human tendency.

Keywords: decision making, heuristics, preferences, social influence, open data, open materials, preregistered