Sunk Cost Fallacy in Driving the World’s Costliest Cars

Abstract

Abstract.We develop a behavioral model of durable good usage with mental accounting for sunk costs. It predicts higher-than-rational usage that attenuates at a rate that increases with sunk costs. Singapore government policy varied the sunk cost of buying a new car. Using Singapore data, we estimate the elasticity of driving with respect to sunk costs to be 0.048, which implies that government policy between 2009 and 2013 was associated with 86 kilometers per month, or 5.6%, more driving. The results are robust to specifying sunk costs as relative to buyer income and estimation with Hong Kong data. We believe this to be the first field evidence of the sunk cost fallacy in usage of a major durable good.History: Accepted by John List, behavioral economics.

The sunk cost effect: short-term behavioural evidence in adults

“…Interestingly, the effect did not influence patrons who payed more to attend more plays for the second half of the season, suggesting that there is a time limit to the influence of sunk costs. A similar finding was found for gymnasium attendance (Gourville & Soman, 1998) and the Singaporean car market paper (Ho et al, 2017). Further research by Soman (2001) highlights the potential depreciation of the effect when he found that unless a monetary amount was attached to a previous investment, the effect of time could reduce or eliminate the sunk cost effect.…”

“…The wider business and economics literature provides some examples of the sunk cost effect with real monetary and behavioural investments (Englmaier & Schmöller, 2010;Ho et al, 2017;Just & Wansink, 2011;Máñez et al, 2009). There are also a number of examples of the sunk cost effect with behavioural investments in non-human animals (Macaskill & Hackenberg, 2012, 2013Magalhaes & White, 2014c;Magalhães & White, 2014b;Magalhães et al, 2012), however, only a handful of non-monetary, short-term behavioural studies exist in humans (Arkes & Blumer, 1985;Coleman, 2009;Cunha Jr & Caldieraro, 2009;Navarro & Fantino, 2009).…”

O efeito Sunk Cost no Processo Decisório dos discentes de Instituições de Ensino Superior

“…Segundo os autores supracitados, espera-se que quanto maior o conhecimento dos indivíduos menor seja o impacto pelo efeito sunk cost ou então que a decisão ocorra de forma racional. Por outro lado, em algumas pesquisas realizadas (Murcia & Borba, 2006;Rover et al, 2009;Ho, Png & Reza, 2018) evidenciaram que os indivíduos de diferentes níveis de formação são afetados igualmente pelo efeito sunk cost, principalmente quando envolve valores monetários.…”

Did the 2011 Change to NFL Rookie Compensation Alter How Sunk Costs Affect Utilization?

“…The sunk-cost fallacy has been studied in many contexts, both experimental (Arkes, 1996; Garland, 1990; Heath, 1995; Ketel et al, 2016; Kogurt, 1990; Moon, 2001; Staw, 1976) and observational (Ho et al, 2018; Jin & Scherbina, 2011; Just & Wansink, 2011; Staw et al, 1997). Observational studies have the advantage of high-stakes decision environments and preventing behavior from changing due to experimenter demands.…”