In this article, the author analyzes such a concept as the sunk cost effect, namely the continuation of investments that do not work. The reason for this is previous investments that cannot be reimbursed. Three experiments were carried out in the article, which show the level of sunk cost effect depending on the perspective from which it was analyzed. In other words, the analysis of the impact also included the study of some additional aspects, such as human nature, intentions, and background causes.
The authors found that the effect of sunk costs is less if the cost decision leads to negative consequences for others. In other words, it is a process of interaction between sunk costs and aspects of the ethics of caution. In another experiment, a sunk cost effect was observed in one person who followed another decision-maker. Finally, by conducting a third experiment, the authors confirmed the hypothesis of a decrease in the impact of sunk costs in the case of negative consequences for other people. It was done by using more powerful statistical methods to test the hypothesis. The authors found a possible reason for this effect, which lies in differently placed priorities. Thus, the author’s assumption is that violation of the basic aspects of the ethics of care eliminates bias in decision-making. Therefore, prioritizing ethical violations overshadows the sunk cost effect, making it less significant for the person.
Finally, the conclusions drawn in the work will help to understand better the decision-making process in the aspect of significant investments. It will help to analyze how various external factors influence the investor’s thinking and why in some cases, there is a sunk cost effect.
Reference
Hamzagic, Z., Derksen, D., Matsuba, M. C., & Bernstein, D. (2020). Harm to others reduces the sunk-cost effect. Memory & Cognition, 49, 544-556.