Beating Irrationality: Does Delegating to IT Alleviate the Sunk Cost Effect?

Abstract

In this research, we investigate the impact of delegating decision making to information technology (IT) on an important human decision bias -the sunk cost effect. To address our research question, we use a unique and very rich dataset containing actual market transaction data for approximately 7,000 pay-perbid auctions. Thus, unlike previous studies that are primarily laboratory experiments, we investigate the effects of using IT on the proneness to a decision bias in real market transactions. We identify and analyze irrational decision scenarios of auction participants. We find that participants with a higher monetary investment have an increased likelihood of violating the assumption of rationality, due to the sunk cost effect. Interestingly, after controlling for monetary investments, participants who delegate their decision making to IT and, consequently, have comparably lower behavioral investments (e.g., emotional attachment, effort, time) are less prone to the sunk cost effect. In particular, delegation to IT reduces the impact of overall investments on the sunk cost effect by approximately 50%.

Robotics for Customer Service: A Useful Complement or an Ultimate Substitute?

“…In addition to being sparse, the extant robotics literature in service marketing is fragmented. Most of the extant literature focuses its attention on customer-robot interaction, while a few other studies address the performance (Herrmann, Kundisch, and Rahman 2015) and impact (Huang and Rust 2018; Shankar 2018; Smith 2002) of robots and robot laws (Olazabal, Cava, and Sacasas 2001) in a scattered way. Customer-robot interaction is a critical topic in the field of human-robot interaction (HRI; e.g., Holzwarth, Janiszewski, and Neumann 2006; Kim, Chen, and Zhang 2016; Toure-Tillery and McGill 2015).…”

“…It is worth noting that the empirical studies of robotics in the extant service marketing literature discuss robotics more from the customer’s perspective than from the firm’s perspective. Only Herrmann, Kundisch, and Rahman’s (2015) work focuses its attention on the firm. Practitioners need more comprehensive knowledge and detailed and actionable advice to guide their practice (Ackerman 2016; Forlizzi 2014; Parasuraman and Colby 2015).…”

“…The extant marketing literature on robotics tends to treat the firm’s robotics adoption decision as a dummy variable, that is, whether to adopt robotics, and then compare scenarios in which robotics is adopted to those in which it is not (e.g., Andreassen, van Oest, and Lervik-Olsen 2018; Herrmann, Kundisch, and Rahman 2015; Kim, Chen, and Zhang 2016). However, we believe that when robotic technology becomes more mature and advanced and people become more familiar with and used to interacting with robots, firms will deploy robotics to some extent in their customer service infrastructure due to the great advantages that robotics would bring to the firm (Huang and Rust 2018).…”

“…Players would feel less autonomy if receiving help from a digital assistant (robot) imbued with human-like features than from a helper construed as a mindless entity during a computer game and experience less enjoyment as a result. Herrmann, Kundisch, and Rahman (2015) Performance of robot…”

A Theory of Ex Post Rationalization

“…Staw and Hoang (1995); Camerer and Weber (1999); Keefer (2017). Herrmann et al (2015); Augenblick (2016). 10 Ashraf et al (2010); Friedman et al (2007); Ketel et al (2016); Negrini et al (2020).…”