On the Observability of Purely Behavioral Sunk-Cost Effects: Theoretical and Empirical Support for the BISC Model

Area of Science:

• Behavioral Economics
• Cognitive Psychology
• Decision Science

Background:

• Investigating the psychological underpinnings of financial decision-making, specifically the sunk-cost effect in behavioral investments.
• Examining the Behavioral Investment Sunk Cost (BISC) model proposed by Cunha and Caldieraro (2009).

Discussion:

• Reconciling experimental findings from Otto (2010) with the predictions of the BISC model.
• Presenting new empirical evidence from two unpublished experiments supporting the BISC model.
• Analyzing the specific psychological and contextual factors that trigger purely behavioral sunk-cost effects.

Key Insights:

• The BISC model provides a robust framework for understanding how past, irrecoverable costs influence current investment decisions, even in the absence of direct financial incentives.
• Experimental data confirm the model's predictions, highlighting the role of psychological commitment in behavioral finance.
• Identifying key conditions under which individuals persist with suboptimal investments due to psychological commitment.

Outlook:

• Further research into the BISC model can refine our understanding of irrational financial behavior.
• Exploring interventions to mitigate the negative impacts of sunk-cost effects in investment strategies.
• Applying BISC model insights to diverse fields such as project management and public policy.