“Sunk Cost As a Self-Management Device”, 2018-08-01 (; backlinks; similar):
The sunk cost effect has been widely observed in individual decisions. Building on an intrapersonal self-management game, the paper theoretically shows that the sunk cost effect may stem from an attempt to overcome the underinvestment problem associated with a high degree of present bias or to resolve the multi-selves coordination problem when the degree of present bias is low. Especially for individuals with severe present bias, the current self may take a costly action (which is a sunk cost for the future self) to signal the individual’s high success probability that motivates his future self-disciplining behaviors. In equilibrium, a higher level of sunk cost is more likely to give rise to a higher probability for the individual to continue the project. We then conduct a laboratory experiment. The empirical findings are consistent with our theoretical implications.
The online appendix is available at
10.1287/mnsc.2018.3032..
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