Framing, Loss Aversion, and Mental Accounting

Soman, Dilip

doi:10.1002/9780470752937.ch19

Cited by 61 publications

(37 citation statements)

References 33 publications

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“…Our findings also offer a means of reconciling seemingly inconsistent findings of prior research regarding a focus on gains and decisions about sunk costs (i.e., Karlsson et al ; Molden & Hui ) by pointing to the importance of considering the period within which gains are to be recognized (see also Moon ; Wong & Kwong ). Our results advance explanations that attribute the SCF to loss aversion and adherence to the “waste not” heuristic (Arkes ; Arkes & Ayton ; Soman ) by suggesting that the key element of these explanations may be the focus on the past investment rather than loss or waste per se. Indeed, if a person focused on future waste or loss, this could facilitate a normatively correct decision because rational decisions about sunk costs are based on future returns.…”

Section: Discussionsupporting

confidence: 74%

“…The most widely cited explanations of the SCF center on loss aversion and irrational adherence to the “waste not” heuristic (e.g., Arkes ; Arkes & Blumer ; Frisch ; Hastie & Dawes ; Soman ; Strough, Schlosnagle & DiDonato, ). Some research indicates that when people are motivated to promote gains, they are better able to ignore sunk costs compared with when they are motivated to prevent loss (Molden & Hui ).…”

Section: Explanations Of the Sunk‐cost Fallacymentioning

confidence: 99%

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No Time to Waste: Restricting Life‐Span Temporal Horizons Decreases the Sunk‐Cost Fallacy

Strough

Schlosnagle

Karns

et al. 2013

Behavioral Decision Making

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In three studies, we examined the influence of restricted and expansive temporal horizons on the sunk‐cost fallacy. The sunk‐cost fallacy occurs when prior investments instead of future returns influence decisions about future investments. When making decisions about future investments, rational decision makers base decisions on future consequences, not already‐invested costs that are “sunk” and cannot be recovered. In Study 1, we restricted young adult college students' temporal horizons by instructing them to imagine that they did not have much longer to live; this manipulation decreased the sunk‐cost fallacy. In Study 2, we replicated Study 1 and also found that the consequences of manipulating temporal horizons were most pronounced for prior investments of time and that prior investments of time and money had different implications for the sunk‐cost fallacy, depending on the social or nonsocial decision domain. In Study 3, we manipulated temporal horizons by instructing students to imagine their time as a college student was coming to an end. Results were mostly similar to Study 2 but also suggested that focusing on one's mortality may have unique consequences. Implications of the three studies for understanding age differences in sunk‐cost decisions, interventions to improve sunk‐cost decisions, and the situations in which interventions might be most needed are discussed. Copyright © 2013 John Wiley & Sons, Ltd.

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Section: Discussionsupporting

confidence: 74%

Section: Explanations Of the Sunk‐cost Fallacymentioning

confidence: 99%

No Time to Waste: Restricting Life‐Span Temporal Horizons Decreases the Sunk‐Cost Fallacy

Strough

Schlosnagle

Karns

et al. 2013

Behavioral Decision Making

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“…Researchers have offered a plethora of explanations for the SCF and escalation of commitment to sunk costs, including believing the attempt will succeed, 83 generating reasons for continuing versus pursuing alternatives, 72 failure to consider alternatives, 93 maintaining a positive self‐image, 68,88 project commitment, 94,95 being perceived by others as “wasting” a resource, 96 mental accounting, 89,97,98 subjective interpretations of scenarios, 74 learning a lesson, 99 loss aversion 65,100 and the “waste not” heuristic 65,101 . In studies that investigate age‐related differences, the “waste not” heuristic has received the most attention.…”

Section: The Sunk‐cost Fallacy: Overviewmentioning

confidence: 99%

Decision‐making heuristics and biases across the life span

Strough

Karns

Schlosnagle

2011

Annals of the New York Academy of Sciences

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We outline a contextual and motivational model of judgment and decision-making (JDM) biases across the life span. Our model focuses on abilities and skills that correspond to deliberative, experiential, and affective decision-making processes. We review research that addresses links between JDM biases and these processes as represented by individual differences in specific abilities and skills (e.g., fluid and crystallized intelligence, executive functioning, emotion regulation, personality traits). We focus on two JDM biases—the sunk-cost fallacy (SCF) and the framing effect. We trace the developmental trajectory of each bias from preschool through middle childhood, adolescence, early adulthood, and later adulthood. We conclude that life-span developmental trajectories differ depending on the bias investigated. Existing research suggests relative stability in the framing effect across the life span and decreases in the SCF with age, including in later life. We highlight directions for future research on JDM biases across the life span, emphasizing the need for process-oriented research and research that increases our understanding of JDM biases in people’s everyday lives.

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“…Another temporal aspect of interpretations that could be important for understanding decisions about plans with sunk costs is whether people look back on past investments that would be wasted or lost (Arkes & Blumer, 1985; Moon, 2001; Soman, 2004). Usually, these thoughts have not been directly assessed, but rather have been inferred from the decisions made (Arkes & Ayton, 1999; Moon, 2001).…”

Section: Introspective Processes and Decisionsmentioning

confidence: 99%

What were they thinking? Reducing sunk-cost bias in a life-span sample.

Strough¹,

Bruin²,

Parker³

et al. 2016

Psychology and Aging

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We tested interventions to reduce “sunk-cost bias,” the tendency to continue investing in failing plans even when those plans have soured and are no longer rewarding. We showed members of a national U.S. life-span panel a hypothetical scenario about a failing plan that was halfway complete. Participants were randomly assigned to an intervention to focus on how to improve the situation, an intervention to focus on thoughts and feelings, or a no-intervention control group. First, we found that the thoughts and feelings intervention reduced sunk-cost bias in decisions about project completion, as compared to the improvement intervention and the no-intervention control. Second, older age was associated with greater willingness to cancel the failing plan across all three groups. Third, we found that introspection processes helped to explain the effectiveness of the interventions. Specifically, the larger reduction in sunk-cost bias as observed in the thoughts and feelings intervention (vs. the improvement intervention) was associated with suppression of future-oriented thoughts of eventual success, and with suppression of augmentations of the scenario that could make it seem reasonable to continue the plan. Fourth, we found that introspection processes were related to age differences in decisions. Older people were less likely to mention future-oriented thoughts of eventual success associated with greater willingness to continue the failing plan. We discuss factors to consider when designing interventions for reducing sunk-cost bias.

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Framing, Loss Aversion, and Mental Accounting

Cited by 61 publications

References 33 publications

No Time to Waste: Restricting Life‐Span Temporal Horizons Decreases the Sunk‐Cost Fallacy

No Time to Waste: Restricting Life‐Span Temporal Horizons Decreases the Sunk‐Cost Fallacy

Decision‐making heuristics and biases across the life span

What were they thinking? Reducing sunk-cost bias in a life-span sample.

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