Whether it is Reality or Imaginary, People are Still Spurred
on by their Previously Sunk Costs
Poonam Gill and Briony Pulford
University of Leicester
Abstract
Previous research (e.g. Arkes & Blumer,
1985) has documented a ‘sunk cost effect’,
in which individuals throw good money after
bad by continuing to invest in a failing
endeavor. Using a sequential risk taking
paradigm the current study examines the
effect of sunk costs on repeated decisions to
take risks and chase losses. The study further
assesses if the effect of sunk costs varies as a
function of whether the sunk cost is real or
imagined. Findings show that in both real
and imaginary decision making situations,
sunk costs have a significant impact on
subsequent risk taking: people continue to
chase losses as a function of their previous
investments in an endeavour.
Theoretical Background
The Sunk Cost Effect
an increased tendency to continue in a
particular venture, once resources (e.g.
time, money, effort) have already been
invested (Arkes & Blumer, 1985). It is
mostly detrimental because as a result and
function of sunk costs decision makers will
continue to invest in losing endeavors.
Limitations in Previous Paradigms
Researchers are aware of the existence of the
sunk cost effect but to date it has only been
examined using one-shot, hypothetical
decision making paradigms.
However, situations exist in which
individuals have to make repeated decisions
as to whether to continue to invest. For
example, in failing business projects
repeated decisions may need to be made, and
in pathological gambling people chase
losses, again, again and again.
The current study moves away from
measuring a dichotomous response to
measuring a continuous response:
persistence in chasing losses.
Method
Results
Participants and Design
Significant main effect of the size of the sunk
cost (i.e. the entrance fee) on number of trials
played [F(1, 64) = 4.188, p < .05, np2 = .061],
see Figure 1.
•Sixty- six undergraduate students.
•A mixed factorial 2 x 2 design.
•IV1: size of sunk cost (small or large
entrance fee), between-subjects.
•IV2: context (real-time decision making or
hypothetical decision making), withinsubjects, counterbalanced.
•DV: number of trials that participants
played in the sequential risk-taking game.
Procedure
No significant interaction between size of the
sunk cost and context (i.e. real or imagined)
used to elicit the sunk cost [F(1, 64) = 1.599, p
= .211].
Participants played a one-player, sequential
risk-taking game and responded to a
comparable
hypothetical
(simulated)
scenario or vice versa dependent on
counterbalancing. The scenario was a web
based simulation of the steps that a person
may follow when put into a comparable
gaming situation (similar techniques have
been used by Coleman, 2010). To avoid
sequence effects a time gap was implemented
between the hypothetical and behavioural
contexts, and further superficial features of
the two methods were kept distinct (e.g.
name of the game).
Figure 1: Mean number of hypothetical and
behavioural trials participants chose to play in small
and large sunk cost conditions.
The Sequential Risk Taking Game
Based on a game described by Brockner and
Rubin (1985)
Large
Entrance Fee
(50p)
Game 1: £
Searcher
Budget (£1.00)
Discussion
Non
Refundable
Entrance Fee=
Sunk Cost
The current research showed that the sunk cost
effect is not limited to one shot decision
situations but that sunk costs have a significant
impact on repeated decisions to chase losses.
Game 2:
Shapester
Small
Entrance Fee
(10p)
Game 1: £
Searcher
Game 2:
Shapester
Risky Trial 1= Free to play
50/50 chance of winning 30 tokens/losing
35 tokens
Cognitive signal to indicate endeavour is
a losing one.
Actual vs. Hypothetical Behavior
Recent literature (e.g. Baumeister, Vohs &
Funder, 2007; Robinson, Pendle, Rowley,
Beck & McColgan, 2008) has specified the
possible distinctions between hypothetical
and actual behavior: people may not always
do what they think they will do.
No significant main effect of context on
number of trials played [F(1, 64) = 0.100, p =
.753].
Subsequent 10 Risky Trials
each @ 5p payment
50/50 chance of winning 30
tokens/losing 35 tokens
The study further demonstrated that for the case
of the sunk cost effect in repeated decision
making the context makes no difference; sunk
costs matter equally whether they are real or
simply imagined.
Directions for Future Research
•To contextualise the paradigm (e.g. map it onto
a consumer decision making situation and other
more applied domains).
•To examine the concept of ‘chasing behaviour’
as a function of sunk costs in pathological
gamblers.
Aims of the Current Study
1. Examine the effect of sunk costs in
repeated decisions to chase losses.
2. Assess if the effect of sunk costs varies
as a function of whether the sunk cost is
real or imagined (i.e. hypothetical).
References
Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational and Human Decision Processes, 35(1), 124-140.
Brockner, J. & Rubin, J. Z (1985). Entrapment in Escalating Conflicts: A Social Psychological Analysis. New York: Springer-Verlag.
Baumeister, R. F., Vohs, K. D., & Funder, D. C. (2007). Psychology as the science of self reports and finger movements. Perspectives on
Psychological Science, 2, 396-403.
Coleman, M. D. (2010). Sunk costs and commitment to medical treatment. Current Psychology, 29, 121-134.
Robinson, E. J., Pendle, J. E., Rowley, M. G., Beck, S. R., & McColgan, K. L. T. (2009). Guessing imagined and live chance events: Adults
behave like children with live events. British Journal of Psychology, 100, 645-659.