Editing Sunk cost (section)

== Psychological factors ==
[[File:Daniel Kahneman (3283955327) (cropped).jpg|thumb|180px|[[Daniel Kahneman]], an Israeli-American psychologist known for his work in behavioral economics and studies of rationality in economics]]
Evidence from [[behavioral economics]] suggests that there are at least four specific psychological factors underlying the sunk cost effect:

* [[framing effect (psychology)|Framing effects]], a cognitive bias where people decide on options based on whether the options are presented with positive or negative [[Connotation (semiotics)|connotations]]; e.g. as a loss or as a gain.<ref>{{ cite book | last1=Plous | first1=Scott | year=1993 | title=The psychology of judgment and decision making | publisher=[[McGraw-Hill]] | isbn=978-0-07-050477-6 }}</ref> People tend to avoid risk when a positive frame is presented but seek risks when a negative frame is presented.<ref name=TandK>{{Cite journal | doi = 10.1126/science.7455683 | last1 = Tversky | first1 = Amos | last2 = Kahneman | first2 = Daniel | s2cid = 5643902 | year = 1981 | title = The Framing of decisions and the psychology of choice | journal = Science | volume = 211 | issue = 4481| pages = 453–58 | pmid = 7455683| bibcode = 1981Sci...211..453T }}</ref>
* An overoptimistic probability bias, whereby after an investment the evaluation of one's investment-reaping dividends is increased.{{citation needed|date=August 2023}}
* The requisite of personal responsibility. Sunk cost appears to operate chiefly in those who feel a personal responsibility for the investments that are to be viewed as a sunk cost.{{citation needed|date=August 2023}}
*The desire not to appear wasteful—"One reason why people may wish to throw good money after bad is that to stop investing would constitute an admission that the prior money was wasted."<ref name=Arkes1985 />

Taken together, these results suggest that the sunk cost effect may reflect non-standard measures of [[utility]], which is ultimately subjective and unique to the individual.

=== Framing effect ===
The framing effect which underlies the sunk cost effect builds upon the concept of [[extensionality]] where the outcome is the same regardless of how the information is framed. This is in contradiction to the concept of intentionality, which is concerned with whether the presentation of information changes the situation in question.

Take two mathematical functions:

# {{math|''f''(''x'') {{=}} 2''x'' + 10}}
# {{math|''f''(''x'') {{=}} 2 · (''x'' + 5)}}

While these functions are framed differently, regardless of the input "x", the outcome is analytically equivalent. Therefore, if a rational decision maker were to choose between these two functions, the likelihood of each function being chosen should be the same. However, a framing effect places unequal biases towards preferences that are otherwise equal.

The most common type of framing effect was theorised in Kahneman & Tversky, 1979 in the form of valence framing effects.<ref>{{Cite journal |last1=Levin |first1=Irwin P. |last2=Schneider |first2=Sandra L. |last3=Gaeth |first3=Gary J. |date=2 November 1998 |title=All Frames Are Not Created Equal: A Typology and Critical Analysis of Framing Effects |journal=Organizational Behavior and Human Decision Processes |volume=76 |issue=2 |pages=149–188 |doi=10.1006/obhd.1998.2804 |pmid=9831520 }}</ref> This form of framing signifies types of framing. The first type can be considered positive where the "sure thing" option highlights the positivity whereas if it is negative, the "sure thing" option highlights the negativity, while both being analytically identical. For example, saving 200 people from a sinking ship of 600 is equivalent to letting 400 people drown. The former framing type is positive and the latter is negative.

Ellingsen, Johannesson, Möllerström and Munkammar<ref>{{Cite journal |last1=Ellingsen |first1=Tore |last2=Johannesson |first2=Magnus |last3=Mollerstrom |first3=Johanna |last4=Munkhammar |first4=Sara |date=17 May 2012 |title=Social framing effects: Preferences or beliefs? |journal=Games and Economic Behavior |volume=76 |pages=117–130 |doi=10.1016/j.geb.2012.05.007  }}</ref> have categorised framing effects in a social and economic orientation into three broad classes of theories. Firstly, the framing of options presented can affect internalised social norms or social preferences - this is called variable sociality hypothesis. Secondly, the social image hypothesis suggests that the frame in which the options are presented will affect the way the decision maker is viewed and will in turn affect their behaviour. Lastly, the frame may affect the expectations that people have about each other's behaviour and will in turn affect their own behaviour.

=== Overoptimistic probability bias ===

In 1968, Knox and Inkster<ref>{{Cite journal | doi = 10.1037/h0025528 | last1 = Knox | first1 =  RE| last2 = Inkster | first2 =  JA| year = 1968 | title = Postdecision dissonance at post time | journal = Journal of Personality and Social Psychology | volume = 8 | issue = 4| pages = 319–323 | pmid = 5645589 }}</ref> approached 141 [[Betting on horse racing|horse bettors]]: 72 of the people had just finished placing a $2.00 bet within the past 30 seconds, and 69 people were about to place a $2.00 bet in the next 30 seconds. Their hypothesis was that people who had just committed themselves to a course of action (betting $2.00) would reduce post-decision dissonance by believing more strongly than ever that they had picked a winner. Knox and Inkster asked the bettors to rate their horse's chances of winning on a 7-point scale. What they found was that people who were about to place a bet rated the chance that their horse would win at an average of 3.48 which corresponded to a "fair chance of winning" whereas people who had just finished betting gave an average rating of 4.81 which corresponded to a "good chance of winning". Their hypothesis was confirmed: after making a $2.00 commitment, people became more confident their bet would pay off. Knox and Inkster performed an ancillary test on the patrons of the horses themselves and managed (after normalization) to repeat their finding almost identically. Other researchers have also found evidence of inflated probability estimations.<ref name="Arkes and Blumer">{{Cite journal | doi = 10.1016/0749-5978(85)90049-4 | last1 = Arkes | first1 = Hal | last2 = Blumer | first2 = Catherine | year = 1985 | title = The Psychology of Sunk Cost | journal = Organizational Behavior and Human Decision Processes | volume = 35 | pages = 124–140 }}</ref><ref>{{Cite journal | doi = 10.1002/1099-0771(200007/09)13:3<295::AID-BDM353>3.0.CO;2-6 | last1 = Arkes | first1 = Hal | last2 = Hutzel | first2 = Laura | year = 2000 | title = The Role of Probability of Success Estimates in the Sunk Cost Effect | journal = Journal of Behavioral Decision Making | volume = 13 | issue = 3| pages = 295–306 }}</ref>

=== Sense of personal responsibility ===

In a study of 96 business students, Staw and Fox<ref>{{Cite journal| doi = 10.1177/001872677703000503| volume = 30| issue = 5| pages = 431–450| last1 = Staw| first1 = Barry M.| last2 = Fox| first2 = Frederick V.| s2cid = 146542771| title = Escalation: The Determinants of Commitment to a Chosen Course of Action| journal = Human Relations| date = 1977| url = https://www.researchgate.net/publication/247716666| access-date = 2019-08-06}}</ref> gave the subjects a choice between making an [[Research and development|R&D]] investment either in an underperforming company department, or in other sections of the hypothetical company. Staw and Fox divided the participants into two groups: a low responsibility condition and a high responsibility condition. In the high responsibility condition, the participants were told that they, as manager, had made an earlier, disappointing R&D investment. In the low responsibility condition, subjects were told that a former manager had made a previous R&D investment in the underperforming division and were given the same profit data as the other group. In both cases, subjects were then asked to make a new $20 million investment. There was a significant interaction between assumed responsibility and average investment, with the high responsibility condition averaging $12.97 million and the low condition averaging $9.43 million. Similar results have been obtained in other studies.<ref name=Staw1974>{{Cite journal| doi = 10.1016/0030-5073(76)90005-2| issn = 0030-5073| volume = 16| issue = 1| pages = 27–44| last = Staw| first = Barry M.| title = Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action| journal = Organizational Behavior and Human Performance| access-date = 2019-08-05| date = 1976| url = http://strategy.sjsu.edu/www.stable/B290/reading/Staw,%20B%20M,%201976,%20Organizational%20Behavior%20and%20Human%20Performance.%2016%20pp%2027-44.pdf}}</ref><ref name="Arkes and Blumer" /><ref name="Whyte1986">{{cite journal|last1=Whyte|first1=Glen|title=Escalating Commitment to a Course of Action: A Reinterpretation|journal=The Academy of Management Review|volume=11|issue=2|year=1986|pages=311–321|issn=0363-7425|doi=10.2307/258462|jstor=258462}}</ref>

=== Desire not to appear wasteful ===
{{unreferenced section|date=April 2024}}
A ticket buyer who purchases a ticket in advance to an event they eventually turn out not to enjoy makes a semi-public commitment to watching it. To leave early is to make this lapse of judgment manifest to strangers, an appearance they might otherwise choose to avoid. As well, the person may not want to leave the event because they have already paid, so they may feel that leaving would waste their expenditure. Alternatively, they may take a sense of [[pride]] in having recognised the [[opportunity cost]] of the alternative use of time.