The sunk cost effect: short-term behavioural evidence in adults

Abstract

Every day decision-making can be affected by a number of judgment biases. One such bias is known as the sunk cost effect. This occurs when a person or a company invests time, effort, or money into something just because they have previously invested in it (Arkes & Blumer, 1985;

Determinants of Susceptibility to Sunk-Cost Fallacy: A Nigerian Case Study

“…When people invest in an activity and it is obvious that there is a need to continue or halt the activity, they would compare the benefits (or gains) with the costs (losses) in each alternative. If a vast amount of resources has been expended, the decision to stop the activity would constitute a sure loss of resources initially invested, and since individuals have aversion to sure losses, they would continue investing, hoping for a favourable or profitable outcome (Nash, 2017). Hence, susceptibility to sunk-cost fallacy depends on the way the decision problem is framed.…”

“…The avoidance of waste is consistent with both the prospect theory and the self-justification theory. While self-justification theory suggests that decision-makers commit the sunk-cost fallacy because they would want to justify that their initial decision was not wasteful, prospect theory posits that people generally are averse to waste of resources and, hence, discontinuing spending more resources on the activity is tantamount to an admission of waste of the resources that have been invested (Arkes and Blumer,1985;Nash, 2017).…”