The sunk cost and Concorde effects: Are humans less rational than lower animals?

Abstract

The sunk cost effect is a maladaptive economic behavior that is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made. The Concorde fallacy is another name for the sunk cost effect, except that the former term has been applied strictly to lower animals, whereas the latter has been applied solely to humans. The authors contend that there are no unambiguous instances of the Concorde fallacy in lower animals and also present evidence that young children, when placed in an economic situation akin to a sunk cost one, exhibit more normatively correct behavior than do adults. These findings pose an enigma: Why do adult humans commit an error contrary to the normative cost-benefit rules of choice, whereas children and phylogenetically humble organisms do not? The authors attempt to show that this paradoxical state of affairs is due to humans' overgeneralization of the "Don't waste" rule.

Subjective costs drive overly patient foraging strategies in rats on an intertemporal foraging task

“…In economic terms, considering sunk costs is irrational, as investments committed to a course of action cannot be recovered. Nevertheless, in many cases decision makers show stronger preference for options they have invested resources in, despite the poor long-term consequences this might entail (37,38).…”

“…An influential account (38,39) suggests that sunk costs affect behavior because humans inappropriately overgeneralize an aversion to wasting valuable resources. Although it is generally a good strategy to avoid squandering valuable resources, misapplication of the waste-aversion heuristic could lead to continued investment in a doomed venture, because sticking with a losing option subjectively validates previous investment.…”

Pursuing goals with others: Group identification and motivation resulting from things done versus things left undone.

“…The source of their motivation, therefore, is the perceived goal commitment, including factors such as expected importance, enjoyment, and likelihood of attainment (Emmons, 1989;Feather, 1982;Fishbein & Ajzen, 1974;Vroom, 1964). One piece of information individuals often rely on to assess their commitment in such circumstances is their prior engagement (Arkes & Ayton, 1999;Bem, 1972;Cialdini, Trost, & Newsom, 1995;Festinger, 1957). Individuals infer from their past actions that they are committed to a goal, and they keep investing in that goal to express their commitment (Henderson, Gollwitzer, & Oettingen, 2007).…”

Internal and Substantive Inconsistencies in Decision Making

“…This implication is shared by research on rule-based decisions (e.g., Amir & Ariely, 2003;Prelec & Herrnstein, 1993;Simonson, chapter 18 18 1989; Simonson & Nowlis, 2000). Examples of decision rules (broadly defined) include "don't waste" (Arkes & Ayton, 1999;Arkes & Blumer, 1985), "seek variety" (e.g., Simonson, 1990), "don't choose the same dish as your friends" (Ariely & Levav, 2000), "don't pay for delays" (Amir & Ariely, 2003), to name just a few.…”