The impact of childhood environments on the sunk-cost fallacy

Abstract

The sunk-cost fallacy is a well-documented cognitive bias in the decision-making literature. Although the emerging literature on childhood socioeconomic status suggests that early-life environments shape individuals' decision strategies and have a long-lasting impact on their decisions, little is known about the impact of childhood socioeconomic status on the sunk-cost fallacy. Using two different scenarios and an actual choice task, we provide converging evidence that individuals who grew up in resource-scarce environments (those with lower childhood socioeconomic status) are reluctant to abandon inferior choices merely because they have already invested substantial resources in them, resulting in the sunk-cost fallacy. This fallacy occurs because individuals with lower childhood socioeconomic status tend to perceive the loss of their prior investments as more wasteful than those with higher childhood socioeconomic status.