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Searching for the sunk cost fallacy

Published online by Cambridge University Press:  14 March 2025

Daniel Friedman ,
Kai Pommerenke ,
Rajan Lukose ,
Garrett Milam  and
Bernardo A. Huberman
Daniel Friedman*
Affiliation:
Department of Economics, University of California, Santa Cruz 95064, USA
Kai Pommerenke
Affiliation:
Department of Economics, University of California, Santa Cruz 95064, USA
Rajan Lukose
Affiliation:
Department of Economics, University of California, Santa Cruz 95064, USA
Garrett Milam
Affiliation:
Department of Economics, University of California, Santa Cruz 95064, USA
Bernardo A. Huberman
Affiliation:
Department of Economics, University of California, Santa Cruz 95064, USA
*
e-mail: [email protected]
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Abstract

We seek to isolate in the laboratory factors that encourage and discourage the sunk cost fallacy. Subjects play a computer game in which they decide whether to keep digging for treasure on an island or to sink a cost (which will turn out to be either high or low) to move to another island. The research hypothesis is that subjects will stay longer on islands that were more costly to find. Eleven treatment variables are considered, e.g. alternative visual displays, whether the treasure value of an island is shown on arrival or discovered by trial and error, and alternative parameters for sunk costs. The data reveal a surprisingly small sunk cost effect that is generally insensitive to the proposed psychological drivers.

Keywords

Sunk costsSunk cost fallacySearchSelf-justificationLoss aversion

JEL classification

D11: Consumer Economics: Theory C91: Laboratory, Individual Behavior
Type
Research Article
Information
Experimental Economics , Volume 10 , Issue 1 , March 2007 , pp. 79 - 104
Copyright
Copyright © 2007 Economic Science Association

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Footnotes

Electronic Supplementary Material Supplementary material is available in the online version of this article at http://dx.doi.org/10.1007/s10683-006-9134-0.

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