The Impact Of Loss Avoid, The Uncertainty Of Investment Forecast And The Ratio Of Project Completion On The Sunk Costs Effect

Sunk costs lead to one's instinctive pain. If they did not continue to invest, they would suffer with this great pain. This kind of adverse economic behavior that such an overinvestment on money, energy and time in the past expresses a strong tendency to continue invest is called sunk cost effects. Since Arkes had discovered the sunk cost effect in 1985 for two decades, many studies have tried to explain this kind of escalation commitment from different perspectives, i.e., loss aversion, mental accounting, regret, cognitive dissonance, responsibility, etc. However, these studies did not agree with each other, and rarely explored which factors avoided such a commitment effect.The present study centered on loss aversion and further investigated the extent to the influence of different factors on sunk costs effect, then found three key factors in determining sunk cost effect:loss aversion, the accuracy of investment forecast and the extent to the project completion.Experiment 1 examined the effect of loss aversion on investment decision under different sunk cost levels in the drug development marketing task. The results revealed that no matter the level of original investment is high or low, loss aversion had a significant impact on decision.Experiment 2 investigated the effect of loss aversion on investment outcome beyond the mental account in the commercial investment task. The results indicated that people continued to invest no matter whether the mental account was being beyond. However, the willingness to continue to invest was significantly reduced in the condition of waste aversion. It is consistent with the notion that loss aversion is the key factor to influence the sunk cost effect, but not the mental account.Experiment 3 examined the effects of the accuracy of investment forecast and loss aversion on investment decision in the drug development marketing task, similar as Experimentl. The results showed that when the level of investment forecast was presented separately, only in determining this non-profit to achieve the same results of reduction in investment willingness to the wasting of avoid; when the information was unsure, the willingness to be continued to invest did not come to be significantly declined; when waste aversion and investment forecast simultaneously worked the investment scene, the sunk cost effect disappeared.Experiment 4 further investigated the effect of loss aversion on investment outcome under the different levels of project completion in the commercial investment task. The results indicated that the ratio of project completion, loss aversion and the accuracy of investment forecast had the main effect, but the interaction effect of each other did not come to be significant. The results suggest that the sunk cost effect is a selective bias on overestimating returns in the condition of maximizing the overall investment interests, and that mediating any one of factors of influencing the investment returns, the sunk cost effect would be significantly reduced.