Why choose wisely if you have already paid? Sunk costs elicit stochastic dominance violations
Journal Title: Judgment and Decision Making - Year 2018, Vol 13, Issue 6
Abstract
Sunk costs have been known to elicit violations of expected utility theory, in particular, the independence or cancellation axiom. Separately, violations of the stochastic dominance principle have been demonstrated in various settings despite the fact that descriptive models of choice favored in economics deem such violations irrational. However, it is currently unknown whether sunk costs also yield stochastic dominance violations. In two studies using a tri-colored roulette wheel choice task with non-equiprobable events yet equal payoffs, we observed that those who had sunk costs selected a stochastically dominated option significantly more than did those who had no costs. Moreover, a second study revealed that people chose a stochastically dominated option significantly more when the expected value was low compared to high. A model comparison of psychological explanations demonstrated that theories that incorporate a reference shift of the status quo could predict these sunk cost-based violations of stochastic dominance whereas other models could not.
Authors and Affiliations
Ryan K. Jessup, Lily B. Assaad and Katherine Wick
Anticipatory stress interferes with utilitarian moral judgment
A recent study indicates that acute stress affects moral decision making (Youssef et al., in press). The current study examines whether results can be replicated using a different kind of stressor and a different kind of...
The irrational hungry judge effect revisited: Simulations reveal that the magnitude of the effect is overestimated
Danziger, Levav and Avnaim-Pesso (2011) analyzed legal rulings of Israeli parole boards concerning the effect of serial order in which cases are presented within ruling sessions. They found that the probability of a favo...
Gender differences in the endowment effect: Women pay less, but won’t accept less
We explore different contexts and mechanisms that might promote or alleviate the gender effect in risk aversion. Our main result is that we do not find gender differences in risk aversion when the choice is framed as a w...
Further evidence for the memory state heuristic: Recognition latency predictions for binary inferences
According to the recognition heuristic (RH), for decision domains where recognition is a valid predictor of a choice criterion, recognition alone is used to make inferences whenever one object is recognized and the other...
Others’ opinions count, but not all of them: anchoring to ingroup versus outgroup members’ behavior in charitable giving
Because of the large amount of information and the difficulty in selecting an appropriate recipient in the context of charitable giving, people tend to make extensive use of heuristics, which sometimes leads them to wron...