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Abstract
This paper investigates the roles of responsibility, ex-post rationalization, and belief in sunk-cost decisions through a two-stage investment task in a laboratory setting. The experiment finds a reverse sunk-cost effect after a low signal: Participants are about 10 percentage points less likely to make additional investments in the presence of exogenous sunk costs. This effect is not detectable when participants are not responsible for their initial investment decisions. I find no evidence that ex-post rationalization affects the magnitude of sunk-cost bias, and sunk costs do not systematically distort participants’ beliefs about future project success.
External presentation
- SEA 94th Annual Meetings (DC, 2024)
- MEA 88th Annual Meetings (Chicago, 2024)
- Midwest Experimental Economics Meeting for Graduate Students (Ohio State, 2023)