Sunk cost fallacy
(also called the Concorde fallacy)
(also called the Concorde fallacy)
DESCRIPTION
The mistaken belief that a continued investment in a project or similar initiative is warranted based on past investment in it.
The mistaken belief that a continued investment in a project or similar initiative is warranted based on past investment in it.
KEY INSIGHTS
As sunk costs, by definition, have already occurred and cannot be recovered to any significant degree, the fallacy involves inappropriately considering what investment has already occurred as opposed to assessing the current rationality for any additional investment.
As sunk costs, by definition, have already occurred and cannot be recovered to any significant degree, the fallacy involves inappropriately considering what investment has already occurred as opposed to assessing the current rationality for any additional investment.
KEYWORDS Decision making, judgment, bias, error
IMPLICATIONS
Marketers making investments in marketing strategies and programs must be aware of committing the sunk cost fallacy in making judgments lest further investment becomes at risk of becoming sunk costs
as well. For example, the term is referred to as the Concorde fallacy due to the observed behaviors of investors supporting the development of the Concorde supersonic jet: after a point was reached where the high development costs made continued investment clearly uneconomical, the British and French governments ultimately supported the project to justify the past investments.
Marketers making investments in marketing strategies and programs must be aware of committing the sunk cost fallacy in making judgments lest further investment becomes at risk of becoming sunk costs
as well. For example, the term is referred to as the Concorde fallacy due to the observed behaviors of investors supporting the development of the Concorde supersonic jet: after a point was reached where the high development costs made continued investment clearly uneconomical, the British and French governments ultimately supported the project to justify the past investments.
APPLICATION AREAS AND FURTHER READINGS
Decision Making
Armstrong, J. Scott, Coviello, Nicole, and Safranek, Barbara (1993). ‘Escalation Bias: Does it Extend to Marketing?’ Journal of the Academy of Marketing Science, 21(3), 247–253.
Armstrong, J. Scott, Coviello, Nicole, and Safranek, Barbara (1993). ‘Escalation Bias: Does it Extend to Marketing?’ Journal of the Academy of Marketing Science, 21(3), 247–253.
Soman, Dilip (2001). ‘The Mental Accounting of Sunk Time Costs: Why Time is Not Like Money,’ Journal of Behavioral Decision Making, 14(3), 169–185.
Hsee, Christopher K., Zhang, Jiao, Yu, Fang, and Xi, Yiheng (2003). ‘Lay Rationalism and Inconsistency between Predicted Experience and Decision,’ Journal of Behavioral Decision Making, 16(4), 257–272.
BIBLIOGRAPHY
Arkes, Hal R., and Ayton, Peter (1999). ‘The Sunk Cost and Concorde Effects: Are Humans Less Rational Than Animals?’ Psychological Bulletin, 125(5), 591–600.
Arkes, Hal R., and Ayton, Peter (1999). ‘The Sunk Cost and Concorde Effects: Are Humans Less Rational Than Animals?’ Psychological Bulletin, 125(5), 591–600.
superior goods see goods
supermarketing see retail marketing
supermarketing see retail marketing