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

Abstract

The 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 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 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 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 and benefits of the current options should influence one's decision. Nevertheless, several researchers have shown that people do attend to prior investments as they consider what course of action to take. For example, Arkes and Blumer (1985, Experiment 2) arranged to have three different types of season tickets sold to persons who approached the Ohio University Theater ticket booth at the beginning of the season. Approximately one third of the patrons purchased season tickets at the full $15 price, one third at $13, and one third at $8. Compared with those who purchased tickets at $15, those who purchased tickets at either of the discounted prices attended fewer plays during the subsequent 6 months. Apparently, those who had sunk the most money into the season tickets were most motivated to use the tickets. This is contrary to the maxim that incremental costs and benefits should govern one's decision to attend the plays. Once the tickets had been purchased, all patrons had a license to attend any play. Presumably, the costs and benefits of theater attendance would have been equal for the members of all