The Psychology of Sunk Cost.

Arkes, H. R., & Blumer, C. (1985). The Psychology of Sunk Cost. Organizational Behavior and Human Decision Processes, 35(1), 124-140.

Type

Journal article

Intellectual base

Primary research

Year

1985

Volume

35

Issue

1

Pages

124-140

ISSN

0749-5978

DOI

10.1016/0749-5978(85)90049-4

DOI registrant

Elsevier

Link

https://doi.org/10.1016/0749-5978(85)90049-4

Cited from

behavioral_economics, information_theory, psychology

Cited by

8 citations across 8 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Escalation of Commitment
  • the specific continue-versus-redirect-versus-exit choice currently facing the decision-maker, framed as a decision about allocating fresh capital, effort, time, reputation, or political capital to the existing course; © a prospective analysis — forward-looking costs and benefits of continuation versus alternatives, using only future cash flows, future opportunity costs, future reputational and relational effects; sunk costs explicitly excluded; (d) identification of the sunk-cost fallacy

    This sourceDefinitive experimental demonstrations of sunk-cost bias (incl. the theater-season-ticket field study); frames it as a manifestation of the 'don't waste' rule.

• Reversibility and Irreversibility
  • Sunk Cost focuses on the fallacy and the bias—Arkes and Blumer (1985) document the empirical pull of past investment on forward decisions; Reversibility and Irreversibility focuses on the spectrum of reversibility and the choice logic of when irreversibility is warranted.
• Sunk Cost and Irreversible Commitment
  • Sunk cost and irreversible commitment is the structural pattern where the magnitude of resources already expended creates a barrier to reversal: sunk costs are economically irrelevant to rational forward-looking decisions, yet psychologically and organizationally they function as powerful commitments that constrain future action, as Arkes and Blumer (1985) demonstrated across a series of decision experiments.

Mechanisms

• Commitment Reset Memo
  • The sunk-cost fallacy

    This sourceDemonstrates the sunk-cost effect: prior investments that cannot be recovered can improperly influence decisions about whether to continue.

• Opportunity-Cost Review
  • The classic misuse is its evil twin, the sunk-cost fallacy

    This sourceDefines the sunk-cost effect as a greater tendency to continue an endeavor after money, effort, or time has already been invested.

• Small-Bet Option Ladder
  • A ladder whose losers are never cut becomes a drawer of zombie projects that quietly consume the capital meant for winners — the sunk-cost fallacy scaled to a portfolio.

    This sourceShows that prior investment increases the tendency to continue an endeavor.

• Sunk-Cost Reset Review
  • Its strength is that it targets the two engines of over-persistence directly: the sunk-cost fallacy

    This sourceDefines the sunk-cost effect as greater willingness to continue an endeavor after prior investment.

• Switching-Cost Audit
  • The sunk-commitment ledger counts what has already been spent and cannot be recovered — and it is kept off the switching decision on purpose, because sunk cost is irrelevant to whether leaving is worth it now.

    This sourceTreats irrecoverable past expenditure as sunk and therefore irrelevant to the present continue-or-leave decision.

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