475/2020 David Ronayne, Daniel Sgroi, Anthony Tuckwell

We provide experimental evidence of behaviour consistent with the sunk cost effect. Subjects who earned a lottery via a real-effort task were given an opportunity to switch to a dominant lottery; yet 23% chose to stick with their dominated lottery. The endowment effect accounts for roughly only one third of the effect. Subjects' capacity for cognitive reflection is a significant determinant of sunk cost behaviour. We also find stocks of knowledge or experience (crystallized intelligence) predict sunk cost behaviour, rather than algorithmic thinking (fluid intelligence) or the personality trait of openness. We construct and validate a scale, the “SCE-8”, which encompasses many resources individuals can spend, and offers researchers an efficient way to measure susceptibility to the sunk cost effect.

Behavioural Economics and Wellbeing

Journal of Economic Behaviour and Organization

https://doi.org/10.1016/j.jebo.2021.03.029