Sunk Cost Effects: The Influences of Instruction and Future Return Estimates

Abstract

Normative principles imply that decision makers′ choices should be affected solely by the prospective future consequences of the options. Previous work, however, has demonstrated the occurrence of sunk cost effects, whereby decision makers are reluctant to abandon options in which they have made prior investments. The present research shows that, contrary to earlier findings, there exist conditions under which sunk cost effects are reduced significantly by instruction in pertinent economic principles. Additional findings indicate that sunk cost effects are mitigated by an important factor that is often present in real-world decision situations but omitted in most sunk cost research paradigms-explicit estimates of the future returns the given options might yield. Theoretical and practical implications are developed and discussed, including possibly common ambiguities about what normative sunk costs principles imply and how they should be applied.