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Review article

https://doi.org/10.5559/di.22.2.07

Sunk Cost Effect

Marko BOKULIĆ ; Sveučilište u Regensburgu, Regensburg
Kosta BOVAN ; Zagreb


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Abstract

Normative economic principles, as described in the theory of rational choice, assume that we base our decisions solely on future gains and losses. However, the results of several lines of research show that our decisions are influenced by sunk costs, past investments that are not redeemable. This phenomenon is called the sunk cost effect and it comes in two forms. In choice dilemmas we want to use what we have paid disregarding possible additional costs. When deciding whether to continue an investment, people tend to financially support a failing project. In this paper, both types of sunk cost effects are described and results of relevant research are reviewed, as well as the methodology and criticisms of this research. Furthermore, the differences between economic and psychological theories are considered. In the end, the practical implications of this research for the managerial domain are mentioned.

Keywords

sunk cost effect; choice dilemma; escalation of commitment; judgment and decision making; behavioral economics

Hrčak ID:

105466

URI

https://hrcak.srce.hr/105466

Publication date:

9.7.2013.

Article data in other languages: croatian

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