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heuristic, sunk cost fallacy, sunk cost effect, loss aversion, sunk-cost, loss-aversion, biases and heuristics
The sunk-cost fallacy (SCF) occurs when an individual makes an investment with a low probability of a payoff because an earlier investment has already been made. It is considered an error because a rational decision maker should not factor in now-irretrievable investments, as they do not affect current-outcome likelihoods. Previous research has measured the tendency to commit the SCF by using hypothetical scenarios in which participants must choose to make a future investment or not after making an initial investment. Loss aversion, the preference for uncertain over certain losses, may be related to SCF. In this study, participants were asked to complete a time, effort, and money questionnaire in which they could decide whether or not to continue investing in each hypothetical scenario. They also completed an endowment-effect task. A mixed design ANOVA indicated no significant difference in SCF occurrences across initial investment amount. There was a significant main effect of initial investment type, indicating SCF ccurrences were greatest when the initial investment type was money, less for time, and least for effort. Lastly, loss aversion was not positively related to SCF.
The Annual Mary Lou Fulton Mentored Research Conference showcases some of the best student research from the College of Family, Home, and Social Sciences. The mentored learning program encourages undergraduate students to participate in hands-on and practical research under the direction of a faculty member. Students create these posters as an aide in presenting the results of their research to the public, faculty, and their peers.
BYU ScholarsArchive Citation
Tait, Veronika and Miller, Harold JR, "The Effects of Loss Aversion and Investment Type on the Sunk Cost Fallacy" (2015). FHSS Mentored Research Conference. 276.
Family, Home, and Social Sciences
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