Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/236288 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14257
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We provide experimental evidence of behavior consistent with the sunk cost effect. Subjects who earned a lottery via a real-effort task were given an opportunity to switch to a dominant lottery; 23% chose to stick with their dominated lottery. The endowment effect accounts for roughly only one third of the effect. Subjects' capacity for cognitive reflection is a significant determinant of sunk cost behavior. We also find stocks of knowledge or experience (crystallized intelligence) predict sunk cost behavior, rather than algorithmic thinking (fluid intelligence) or the personality trait of openness. We construct and validate a scale, the "SCE-8", which encompasses many resources individuals can spend, and offers researchers an efficient way to measure susceptibility to the sunk cost effect.
Subjects: 
sunk cost effect
sunk cost fallacy
endowment effect
cognitive ability
fluid intelligence
crystallized intelligence
reflective thinking
randomized controlled trial
online experiment
online survey
psychological scales
scale validation
Raven’s progressive matrices
international cognitive ability resource
cognitive reflection test
openness
JEL: 
D91
C83
C90
Document Type: 
Working Paper

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