Research and development. Once created, the market is indifferent, and no one buys any no units. The computers prove to be unreliable, and the sales manager wants to discontinue their use.
The training is a sunk cost, and so should not be considered in any decision regarding the computers. Hiring bonus. Cost Accounting Fundamentals. Financial Analysis. Accounting Books. Either way, you aren't getting your money back. Working out may be advantageous to your health, but your annual membership shouldn't dictate whether you go to the gym on any given day.
Although, this is not to say there are no other benefits to working out. How many times have you been at a restaurant and felt compelled to finish your meal? What about dessert? You ordered it, so you have to enjoy it and eat as much as you can.
Maybe you went to law school, passed the bar, started working, and then realized you hate being a lawyer. Thaler's second argument Thaler, R. This effect is manifested in two ways: absolutely certain gains are greatly overvalued and certain losses are undervalued, as in prospect theory.
With this, whenever a sunk cost dilemma involves the choice of a certain loss versus maintaining an investment over a longer period, the certainty effect favors the latter option due to the positive expectation that the scenario will change and the cost spent can be recovered.
This assumption, once again, indicates that people, even in adverse conditions, act by not only considering the current and the future situation, but that they unconsciously overestimate past costs Mcafee et al. These points make it clear that there may be several explanations for people's behavior regarding sunk costs, and that, likewise, there are a multitude of implications and circumstances in which bias emerges.
In everyday life, for example, Arkes and Blumer Arkes, H. As they prepare to go to the game, a terrible blizzard begins, and the winner of the ticket announces that he will not go to the game anymore, because the climatic adversities to be faced would be greater than the pleasure of going to the game.
On the other hand, his friend, who bought a ticket, immediately protests, reporting that he had paid for a ticket and could end up wasting money.
This example makes the friend's non-rational behavior clear, because he should only consider the momentary satisfaction conditions of going to the game or not, since the amount paid cannot be recovered, and thus should not influence his decision to go to the game or not.
At the business level, sunk costs can directly influence project decisions. Garland Garland, H. Many areas have studied the impact of group and individual decisions. Seattle: KDP Amazon. These studies are slowly being incorporated into finance, but there is no consensus as to whether groups make better decisions than isolated individuals Prates et al. Are groups more less consistent than individuals? Journal of Risk and Uncertainty, 18 1 , Are groups more rational than individuals? A review of interactive decision making in groups.
Wiley Interdisciplinary Reviews: Cognitive Science, 3 4 , Group Agency: the possibility, design, and status of corporate agents. Oxford University Press. Corroborating the first perspective, Bone et al.
Shupp and Williams Shupp, S. Risk preference differentials of small groups and individuals. Economic Journal, , The crowd: A study of the popular mind. London: Ernest Benn. Whyte Whyte, G. Escalating commitment in individual and group decision-making: A prospect theory approach. Organizational Behavior and Human Decision Processes, 54 3 , Specifically in relation to sunk costs, Smith et al.
On the other hand, most of the studies up to now have pointed to groups as being more efficient decision makers, ratifying the third assumption. In this sense, Rockenback, Sadrieh, and Mathauschek identified that groups outperform individuals in terms of the adjusted returns of stock portfolios. According to the authors, groups excel when they do not expose themselves to excessive risks. Similarly, Prates, da Costa Jr. It is also worth noting the findings of Sutter Sutter, M. Are teams prone to myopic loss aversion?
An experimental study on individual versus team investment behavior. Economics Letters, 97 2 , According to List and Pettit List, C. Coupled with this, King and Cowlishaw King, A. The theory of crowds follows the same perspective, and is summarized by Da Silva and Matsushita , p. Such findings show that group size can influence decisions. When investigating the influence of team size on decision-making in a beauty contest, Sutter Sutter, M. This result indicates that the size of the team has, in fact, an effect on team decision-making.
Similarly, but tied to aspects of behavioral finance, Prates et al. From this evidence, it is verified that groups do better in some situations, whereas in others isolated individuals do better, and yet there are those in which there is no difference in decision-making. Furthermore, group size may also be a predictor. From this, it is evident that there is no consensus in the literature, thus warranting academic attention in order to better define the circumstances that make decision-making more efficient: in groups or in isolation.
This study uses an experimental approach, consisting of a questionnaire applied to students of administration, accounting sciences, and economics courses at the Federal University of Santa Catarina UFSC. The process of developing the experiment took place in the classroom.
Later, the researchers went to the classes and contacted the students, asking them whether they would be interested in participating in the study, and leaving them completely free not to accept or even give up during the process.
In addition, each student answered only one questionnaire, and the instructions for completing the survey were given without specifying the subject of the research, in order not to influence the answers. The questionnaires were applied to 34 students individually, as well as to 60 students in groups of two, and to 96 students in groups of three. The data collection thus contemplated a total of 96 instruments applied among individuals both individually and in groups, with a total of participants.
The groups formed freely, with those conducting the experiment merely taking care to make their composition as heterogeneous as possible in terms of gender, thus avoiding this variable interfering in the results.
The questionnaire applied was adapted from Arkes and Blumer Arkes, H. The descriptive tests initially aimed at verifying the profile of the respondents. Subsequently, descriptive statistics were used to analyze the frequency and percentage response for the five specific sunk cost variables. The chi-square test of adhesion was used in order to ascertain the significant differences between the individuals' possible answers in each one of the questions.
This test is widely used in experimental studies to analyze data with the objective of observing frequencies in at least two categories, verifying if the observed frequency differs significantly from the expected frequency Campos, Campos, H. Piracicaba: Esalq. Similarly, Pearson's chi-square test is also a common test to determine significance, but it associates two categorical variables.
From this test, the two pairs of questions that contain similar scenarios were related, so that one of them considers an initial investment and the other does not. Thus, it is possible to verify whether the two variables are independent null hypothesis or dependent alternative hypothesis. The survey comprised a total of participants, of which 34 answered the questionnaire individually, 60 in pairs, and the remaining 96 students answered in trios.
Table 1 shows the gender of the participants in each group. Although the effect has a negative influence, in that individuals deviate from basic economic principles, it may also have a positive side.
For example, an already-paid-for product may also serve as a pre-commitment device for consumers. Gourville and Soman track attendance of health-club members and find that attendance rate was highest right after the payment was made. Thus, it seems to matter whether consumers unconsciously or consciously use the sunk-cost effect to enhance goal pursuit by pre-committing to alternatives they would otherwise not use or consume. This case might be especially true for activities or services such as gyms or diets that require discipline and perseverance DellaVigna and Malmendier Sixth, in this research we treat usage intensity of flat-rate products as one type of utilization decision.
However, these decision situations might differ when choices are between different alternatives. Therefore, we applied a separate dummy-coded meta-regression to account for that circumstance. Indeed, we find some indication that effect sizes for the sunk-cost effect under flat-rate usage are slightly lower. Scant empirical research has explored the impact of sunk costs on flat-rate usage, which provides further research potential. Although the results of our meta-analysis integrate findings from several studies on the sunk-cost effect, thereby providing new insights into the strength of the effect and its moderators with respect to the underlying decision situation, the analysis also has shortcomings.
First, a basic problem of every meta-analysis is that primary studies do not provide all the information needed to make the results perfectly comparable. In order to still be able to perform multivariate analyses data has been imputed which shifts the results for age to insignificance.
For example, in our analysis the time delay between the initial and subsequent investments was coded high versus medium versus low. Therefore, it is crucial to interpret the findings in accordance with our coding protocol provided in Appendix 1.
A second limitation of our study is that not all the studies we included are based on data sets collected with the same research design. Most studies use experimental data and examine the sunk-cost effect with hypothetical scenarios. However, we did not exclude data sets obtained from survey or field observations. The small number of cases made a separate analysis impossible.
This reveals the problem of comparing effect sizes from different research designs. Therefore, we run our calculations with collapsed categories. In line with this, we did not separately analyze studies on progress decisions conducted with students versus corporate decision-makers. A third limitation pertains to the impact of time on the effect sizes of the sunk-cost effect in progress decisions. Although we only included studies that explicitly manipulate sunk costs, we are aware that our meta-analysis cannot disentangle the sunk-cost effect from other drivers of escalation tendencies.
We attribute this to two reasons: first, funding can increase with project time, especially in scenario-based studies with multiple-linked progress decisions. Second, all studies analyzed involve monetary sunk costs, but we cannot rule out that other resources, such as time or effort, might also be invested as the project continues. We leave this issue for further research. Other than these shortcomings, our detailed discussion of sunk-cost effects with respect to utilization and progress decisions offers fruitful insights for further academic discussion.
Anderson, J. Cognitive skills and their acquisition. Hillsdale: Psychology Press. Google Scholar. Acquisition of cognitive skill. Psychological Review 89 4 : — Article Google Scholar.
Arkes, H. The sunk cost and concorde effects: are humans less rational than lower animals? Psychological Bulletin 5 : — The psychology of sunk cost. Organizational Behavior and Human Decision Processes 35 1 : — The role of probability of success estimates in the sunk cost effect.
Journal of Behavioral Decision Making 13 3 : — Armstrong, S. Coviello, and B. Escalation bias: does it extend to marketing? Journal of the Academy of Marketing Science 21 3 : — Ashraf, N. Berry, and J. Can higher prices stimulate product use? Evidence from a field experiment in Zambia. American Economic Review 5 : — Astebro, T.
Jeffrey, and G. Inventor perseverance after being told to quit: the role of cognitive biases. Journal of Behavioral Decision Making 20 3 : — Bazerman, M. Giuliano, and A. Escalation of commitment in individual and group decision making. Organizational Behavior and Human Performance 33 2 : — Boehne, D. Deciding whether to complete or terminate an unfinished project: a strong test of the project completion hypothesis.
Organizational Behavior and Human Decision Processes 81 2 : — Brockner, J. The escalation of commitment to a failing course of action: toward theoretical progress. Academy of Management Review 17 1 : 39— Camerer, C. Chase, W. In Visual information processing , ed. William G. Chase, — New York: Academic Press.
Conlon, D. The role of project completion information in resource allocation decisions. Academy of Management Journal 36 2 : — Cunha Jr, M. Sunk-cost effects on purely behavioral investments. Cognitive Science 33 1 : — DellaVigna, S. Paying not to go to the gym. American Economic Review 96 3 : — Dick, A. The impact of membership fees on consumer attitude and choice.
Psychology and Marketing 15 1 : 41— Ensley, Mica R. Expertise and situation awareness. In The Cambridge handbook of expertise and expert performance, eds. Hoffman, and Paul J. Feltovich, — Cambridge: Cambridge University Press.
Feltovich, Paul J. Prietula, and K. Anders Ericsson. Studies of expertise from psychological perspectives. Feltovich, 14— Fennema, M. Mental budgeting versus marginal decision making: training, experience, and justification effects on decisions involving sunk costs.
Journal of Behavioral Decision Making 21 3 : — Fern, E. Effect size estimates: issues and problems in interpretation.
Journal of Consumer Research 23 2 : 89— Festinger, L. A theory of cognitive dissonance. Stanford: Stanford University Press. Frey, B. Marriage paradoxes. Rationality and Society 8 2 : — Friedman, D.
Pommerenke, R. Lukose, G. Milam, and B. Searching for the sunk cost fallacy. Experimental Economics 10 1 : 79— Garland, H. Throwing good money after bad: the effect of sunk costs on the decision to escalate commitment to an ongoing project. Journal of Applied Psychology 75 6 : — Too close to quit: the role of project completion in maintaining commitment. Journal of Applied Social Psychology 28 22 : — Effects of absolute and relative sunk costs on the decision to persist with a course of action.
Organizational Behavior and Human Decision Processes 48 1 : 55— Sandefur, and A. De-escalation of commitment in oil exploration: when sunk costs and negative feedback coincide. Gino, F. Do we listen to advice just because we paid for it? The impact of advice cost on its use. Organizational Behavior and Human Decision Processes 2 : — Gourville, J. Payment depreciation: the behavioral effects of temporally separating payments from consumption. Journal of Consumer Research 25 2 : — Greitemeyer, T.
Schulz-Hardt, G. Popien, and D. Guler, I. Throwing good money after bad? Political and institutional influences on sequential decision making in the venture capital industry. Administrative Science Quarterly 52 2 : — Heath, C.
Escalation and de-escalation of commitment in response to sunk costs: the role of budgeting in mental accounting. Organizational Behavior and Human Decision Processes 62 1 : 38— Mental budgeting and consumer decisions. Journal of Consumer Research 23 1 : 40— Higgins, J.
T and S. Access date 11 Sep Hox, J. Multilevel analysis , 2nd ed. New York: Routledge. Hunter, J. Methods of meta-analysis , 2nd ed. Thousand Oaks: Sage Publications. Jang, D. Mattila, and B. Restaurant membership fee and customer choice: the effects of sunk cost and feelings of regret. International Journal of Hospitality Management 26 3 : — Janssen, M. Kohler, and M. Sunk-cost effects and vulnerability to collapse in ancient Societies. Current Anthropology 44 5 : — Jensen, J. Conlon, S. Humphrey, and H.
The consequences of completion: how level of completion influences information concealment by decision makers. Journal of Applied Social Psychology 41 2 : — Just, D. Review of Economics and Statistics 93 1 : — Kahneman, D.
Prospect theory: an analysis of decision under risk. Econometrica 47 2 : — Keil, M. Rai, and J. Why software projects escalate: an empirical analysis and test of four theoretical models. MIS Quarterly 24 4 : — Larkin, J. McDermott, D. Simon, and H. Expert and novice performance in solving physics problems.
Science : — Lipsey, M. Practical meta-analysis. Macaskill, A. The sunk cost effect in pigeons and humans: some determinants of decisions about persistance. Journal of the Experimental Analysis of Behavior 97 1 : 85— Maestripieri, D.
Litter defence and parental investment allocation in house mice. Behavioural Processes 23 3 : — Manez, J. R-B, A.
0コメント