Date of Graduation
Eberly College of Arts and Sciences
The sunk-cost fallacy occurs when a person invests more of a resource because they have made an irrecoverable initial investment (i.e., a sunk cost) compared to scenarios in which they did not make an initial investment, or made a smaller initial investment. The normatively correct decision is to invest exactly the same amount regardless of whether or not an initial investment has been made. An aversion to "wasting" or "losing" the initial investment has been cited as a potential reason for why people commit the sunk-cost fallacy (Arkes & Blumer, 1985; Soman, 2004). Additionally, younger adults commit the sunk-cost fallacy more frequently, and make normatively correct decisions less frequently, than older adults when hypothetical sunk costs are at stake (Strough, Mehta, McFall, & Schuller, 2008). In the present study, younger (n=50, M age = 20.44, 68% women) and older (n=50, M age = 69.74, 56% women) adults responded to a Calorie Estimation Task measure of the sunk-cost fallacy involving investments and potential returns of real money, as well as a self-report measure involving hypothetical investments of time and money. Younger adults made fewer initial investments of money on the Calorie Estimation Task than older adults. Younger adults demonstrated the sunk-cost fallacy more frequently, overinvested more after demonstrating the fallacy, and made the normatively correct decision less frequently than older adults on the hypothetical self-report measure of the sunk-cost fallacy. Younger adults indicated that they were more averse to hypothetical monetary losses on a Tradeoff Loss Aversion Task and more averse to hypothetical monetary losses on a Delay Discounting Loss Aversion Task. An inverse (although non-significant) relation between Tradeoff Loss Aversion Task Scores and the Spendthrift Tightwad Scale Scores (STS; Rick, Cryder, & Loewenstein, 2008) provided preliminary evidence for convergent validity of the Tradeoff Loss Aversion Task. A positive (although non-significant) relation between Delay Discounting Loss Aversion Scores and STS Scores suggested that the Delay Discounting Loss Aversion Task lacked convergent validity as a measure of loss aversion. Neither measure of loss aversion mediated the inverse relation between age and demonstration of the sunk-cost fallacy on the self-report measure of the sunk-cost fallacy. Participants' ability to estimate calories accurately, their confidence in their ability to estimate calories accurately, and their difficulty paying bills did not relate to rates of advice purchasing. Older adults did not demonstrate the sunk-cost fallacy on the Calorie Estimation Task by following more expensive advice more closely than less expensive advice. Exploratory analyses, implications and limitations of the present study, and potential directions for future research are discussed.
Schlosnagle, Leo, "Following Advice Because it's Been Paid For: Age, the Sunk-Cost Fallacy, and Loss Aversion" (2011). Graduate Theses, Dissertations, and Problem Reports. 4783.