The role of probability of success estimates in the sunk cost effect

  • Arkes H
  • Hutzel L
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Abstract

The sunk cost effect is manifested in a tendency to continue an endeavor once an investment has been made. Arkes and Blumer (1985) showed that a sunk cost increases one's estimated probability that the endeavor will succeed p(s). Is this p(s) increase a cause of the sunk cost effect, a consequence of the effect, or both? In Experiment 1 participants read a scenario in which a sunk cost was or was not present. Half of each group read what the precise p(s) of the project would be, thereby discouraging p(s) inflation. Nevertheless these participants manifested the sunk cost effect, suggesting p(s) inflation is not necessary for the effect to occur. In Experiment 2 participants gave p(s) estimates before or after the investment decision. The latter group manifested higher p(s), suggesting that the inflated estimate is a consequence of the decision to invest. Copyright (C) 2000 John Wiley & Sons, Ltd.

Author-supplied keywords

  • Investment decisions
  • Sunk cost

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Authors

  • Hal R. Arkes

  • Laura Hutzel

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