In some sense, the history of a relationship is a
sunk cost (or benefit); if a person conditions on this history in a way that makes him or her stay in relationships that have a 0 or slightly negative expected value going forward, the person has created an exit barrier.
Therefore, the phenomena analyzed by behavioral finance--including the
sunk cost effect--originate from the very architecture of human cognition, which privileges intuitive, quick and automated thought.
The above two observations suggest that the contestable market framework provides a strong second-mover advantage to the entrant, which is not eroded by a
sunk cost of entry.
Similarly, ERGAS & SMALL (2000) applied the real options methodology to examine the
sunk cost of assets and the regulator's impact on the distribution of returns.
This is because most of us suffer from the
sunk cost fallacy.
They cover linking the ethics and management control literatures, managerial accounting research in corporate social responsibility: a framework and opportunities for research, sustainability/CSR research in management accounting: a review of the literature, Simon's levers of control framework: commensuration within and of the framework, resolving the
sunk cost conflict, aligning financial and management accounting policies: empirical evidence from German IFRS 8 segment reports on what drives integration, and individual performance measures: effects of experience on preference for financial or non-financial measures.
This phenomena, known as the
sunk cost effect, is exhibited when a previous investment of time, effort, or money increases the likelihood of continued investment (Arkes and Blumer 1985).
He explained that a brief period of mindfulness meditation can encourage people to make more rational decisions by considering the information available in the present moment, while ignoring some of the other concerns that typically exacerbate the
sunk cost bias.
The most notable examples of violations to the rational decision making model are the
sunk cost effect (Arkes & Blumer, 1985) also considered in terms of escalation to commitment (Staw, 1976; Whyte, 1991) and the Allais Paradox (Allais, 1953; Li, 1994).
11) By making a conscious decision to do that, he would willingly consume his own capital, therefore 70 units would not denote
sunk cost, but rather the price for a subjective pleasure of destroying his funds.
What's remarkable is despite our
sunk cost in R&D, these plates provide the same savings to our customers as our generic trauma products offer--over 50 percent less than conventional vendors' pricing," he said.
