Throwing Good Money After Bad: Why Some Do So More Than Others
Jonathan E. Westfall
John D. Jasper
Stephen Christman
Columbia University
The University of Toledo
The University of Toledo
Inaction
Inertia, Sunk Cost, and Handedness: Avoiding the losses of past decisions
Note: The Title above is used as it was the title of this work at time of submission. The revised title is
Inaction Inertia
Experiment 1
The act of bypassing an initial action (e.g., the $40 discount or the sale price) decreases the
chances an individual will choose subsequent similar actions (e.g., pursuing a $20 discount, or
buying the item later at full price).
Strength of Handedness
Handedness has long been recognized as an important individual
difference, however the majority of previous research has focused on left
versus right handers. It has become increasingly apparent that degree of
handedness (being strongly one-handed versus being mixed-handed, i.e.,
using the non-dominant hand for at least a few activities) may be more
important than direction of handedness. Handedness is negatively
correlated with the size of the corpus callosum, which we theorize allows
greater interhemispheric communication among mixed-handers.
Sunk Cost Effects
Experiments 2-4
The tendency to continue to engage in a behavior after an initial investment of time or money
has been made (Arkes & Blumer, 1985). For example, suppose an individual is engaged in a
project and finds out that, although nearly complete, the project will not be profitable for
his/her company. Normative decision theory argues that a prior investment should not
influence one’s consideration of current options; only the incremental costs and benefits of
the current options should influence one’s decision. Thus, the project should be terminated.
However, many individuals continue to fund the project seemingly in vain, and thus
demonstrate the sunk cost effect.
Missed Deal Scenario
Main effect of condition (Missed deal or got deal), F (1,185)=24.56, p < .001, η2 = .12.
Individuals indicated they would be more likely (M = 7.4) to purchase the item when they had
not missed the original deal (the control condition) than when they had missed the deal (M =
5.5).
A Handedness by Condition interaction was found, F(1, 185)=4.25, p = .041, η2 = .02. Follow
up analyses were conducted and revealed that while strong-handers showed a significant
difference between received deal (M = 7.1) and missed deal conditions (M = 6.0), t(89) = 2.06,
p = .04, d = .43, mixed-handers showed an even larger difference between the same
conditions (M = 7.69 and M = 5.0, respectively), t(96) = 4.96, p < .001, d = .60. This indicates
the inaction inertia effect is stronger for mixed-handers than for strong-handers.
Conclusions
Over a series of 4 experiments, it was shown that that mixed-handers
are more distressed by decisions associated with losses and show a
different proclivity to update beliefs than strong-handers. In addition,
the results of Experiment 4, suggest that mixed-handers are more likely
than strong-handers to pursue sunk costs when the future fate of the
project is not clear; when additional information is provided,
unambiguously indicating that the project will fail, the handedness
difference in sunk costs disappears.
In terms of theory, our results suggest that inaction inertia and sunk
cost effects may result from similar mechanisms. Although seemingly
different, both effects involve, at least implicitly, a past and a current
decision as well as significant inertia – inaction in the former and action
in the later case. Most importantly, both seem to be connected by a
focus on losses, the negative thought one tries to avoid. From a
practical standpoint, the finding that decisions in both inaction inertia
and sunk cost contexts may be predicted by handedness suggests that
including handedness (measured for strength, not direction) in decision
making research may prove fruitful in explaining otherwise
unaccounted for variance.
In 2 experiments, Mixed-handers showed either a greater preference to continue to project. It
was not until the problem used was modified (in the third experiment) to include more
information about the project’s odds of success that Mixed- and strong-handers had a similar
pattern of results.
As a president of a relatively small factory in the health sector you are developing several new health
products… Your factory has already made an investment.. you learn that one of the world’s largest suppliers
of health products is also planning to introduce a medicine against migraine. Your marketing people tell you
that there is an apt possibility that their medicine will outperform yours. [It is clear that their medicine
works faster, is more effective, and is far more economical than the medicine your company is
developing.] Now, what would you decide? Would you continue the development and introduction of the
medicine against migraine? Or would you stop the migraine project, and use your remaining funds for
development of an alternative product?
Text used in Experiment 4
This research was supported by a grant awarded to the second & third authors from the National Science Foundation (SES #0620094). This work is currently in preparation for submission. A copy of
the manuscript, including full references and expanded discussion, is available at the first author’s website: http://jonwestfall.com/bdrm2010