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The sunk cost and concord effects: Are humans less rational than lower animals

By Hal R. Arkes and Peter Ayton

Abstract

The sunk cost effect is a maladaptive economic behavior that is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made. The Concorde fallacy is another name for the sunk cost effect, except that the former term has been applied strictly to lower animals, whereas the latter has been applied solely to humans. The authors contend that there are no unambiguous instances of the Concorde fallacy in lower animals and also present evidence that young children, when placed in an economic situation akin to a sunk cost one, exhibit more normatively correct behavior than do adults. These findings pose an enigma: Why do adult humans commit an error contrary to the normative cost-benefit rules of choice, whereas children and phylogenetically humble organisms do not? The authors attempt to show that this paradoxical state of affairs is due to humans ' overgeneralization of the "Don't waste " rule. The sunk cost effect is a maladaptive economic behavior that is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made (Arkes & Blumer, 1985). A prior investment should not influence one's consideration of current options; only the incremental costs an

Year: 1999
OAI identifier: oai:CiteSeerX.psu:10.1.1.322.4021
Provided by: CiteSeerX
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