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Loss Aversion as a Potential Factor in the Sunk-Cost Fallacy.

Veronika Tait1, Harold L Miller1

  • 1Brigham Young University, EE. UU Brigham Young University EE. UU.

International Journal of Psychological Research
|July 3, 2020
PubMed
Summary

The sunk-cost fallacy (SCF) is more likely when people invest money compared to time or effort. Loss aversion showed a weak negative relationship with the sunk-cost fallacy.

Keywords:
effort.loss aversionmoneysunk-cost fallacytime

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Area of Science:

  • Behavioral Economics
  • Cognitive Psychology

Background:

  • The sunk-cost fallacy (SCF) describes the tendency to continue an investment due to prior commitment, even with low payoff probability.
  • Prior research indicates larger investments increase SCF likelihood, but investment types (money, time, effort) remain under-explored.
  • Loss aversion, a heightened sensitivity to losses over gains, is seldom linked to SCF explanations.

Purpose of the Study:

  • To investigate how investment amount and type influence the occurrence of the sunk-cost fallacy.
  • To examine the role of loss aversion as a potential explanatory factor for differences in SCF across investment types.

Main Methods:

  • A study involving 168 participants who completed a sunk-cost task and an endowment-effect task to measure loss aversion.
  • A 3x3 mixed-design ANCOVA was employed with SCF score as the dependent variable and loss aversion scores as a covariate.

Main Results:

  • The sunk-cost fallacy was most prevalent with monetary investments, followed by time investments, and least with effort investments.
  • Loss aversion exhibited a weak negative correlation with the sunk-cost fallacy, suggesting it may not be a primary driver.

Conclusions:

  • Investment type significantly impacts the manifestation of the sunk-cost fallacy, with money posing the highest risk.
  • While loss aversion plays a role, its weak association suggests other psychological mechanisms may be more influential in driving the sunk-cost fallacy.