This article presents the results of a meta-analytic review on studies that elaborate on the influence of sunk costs on economic decision-making. Overall, we find positive effect sizes for the sunk-cost effect, which leaves little doubt on its general existence. On the one hand, this finding lends support to the robustness of the sunk-cost hypotheses as stated by Arkes and Blumer (
1985). On the other hand, it runs counter to the findings of well-cited research on utilization decisions (Ashraf et al.
2010) and on progress decisions (Friedman et al.
2007). Yet we find that effect sizes deviate in reaction to our hypothesized moderators as well as for different sample and research design characteristics. Next, we discuss the findings with respect to the underlying decision situation, explicate the managerial consequences, provide topics for further research, and, finally, discuss the study’s limitations.
7.1 Conclusion
Overall, we find clearly positive effect sizes for the sunk-cost effect in utilization decisions. Only very few studies indicate a reverse direction, whereas the majority of studies measure a weak-to-moderate positive influence of sunk costs on choices or usage intensity. However, according to the distribution of effect sizes (Fig.
1, Panel b) and the homogeneity analysis, the main effect measured in the studies is substantially heterogeneous.
With regard to our hypothesized moderators that influence the effect sizes, we find that the decision-maker’s familiarity with economic decision-making does not seem to play an important role in utilization decisions. The studies that we analyzed assumed high familiarity when participants had a business background or were explicitly trained in economic decision-making. Yet, we find no significant support for the idea that knowing about basic microeconomic principles prevents individuals from falling prey to the sunk-cost effect. Apparently, individuals are not able to transfer the knowledge they obtain in their professional life to their everyday life. However, we find that the participants’ age influences the sunk-cost effect. This supports findings from Strough et al. (
2008) who also report that older adults are more likely than younger adults to make normatively correct decisions.
With respect to our second hypothesis, we find that the sunk-cost effect becomes smaller when the time between the first payment and the actual consumption decision increases. Therefore, we find support for the idea of payment depreciation (Gourville and Soman
1998; Prelec and Loewenstein
1998). With regard to utilization decisions which have most often been researched for day-to-day decisions, we find clear evidence that consumers indeed mentally forget about the “pain of paying” they felt when they purchased the product that would lead them to use it.
In addition, our results indicate that effect sizes are influenced by the type of research that has been conducted. We observe slightly different effect sizes for the predominantly used scenario experiments and other research designs. This may also help to explain why Ashraf et al. (
2010: 2,386) “fail to find consistent evidence for sunk-cost effects.” However, their conclusion that the sunk-cost effect does not exist may fall short. The smaller effect sizes found when the costs for the product are not explicitly emphasized in these field studies (e.g., different flat-rate prices) are not surprising because costs may be more salient in scenarios and other experimental settings. Moreover, Ashraf et al. (
2010) used a storable product, which may also reduce the pressure for increased usage in response to sunk costs. Additional potential moderators, such as the region in which the study was conducted and the control of confounding factors does not seem to have noteworthy impacts on measured effect sizes.
With regard to progress decisions, we find that the effect sizes vary much more than those in utilization decisions. Nevertheless, most of them are still positive (Fig.
1, Panel b). Again, the heterogeneity in the data can partly be explained by our hypothesized effects.
We find a weak influence of participants’ background in a way that studies based on student samples report slightly higher effect sizes. This is in line with the argument that we already raised for older adults in utilization decisions. Yet, we cannot find a significant impact of age on the sunk-cost effect in progress decisions. This may partly be explained by the fact that the multivariate regression analysis builds on a substantial number of imputed values. Moreover, we find a correlation between subjects´ age and their background because most of the younger participants are business students. However, our non-significant results do not mean that these moderators do not affect the sunk-cost effect. Yet, within our study’s sample sizes and statistical power, we are unable to document a statistically significant impact.
In addition, most studies use hypothetical scenarios. Unfortunately, the number of studies that base their findings on field or experimental data with economic consequences is limited. We have as little as k = 3 samples of non-students with high familiarity in economic decision-making. Therefore, we are not able to separate these effects thoroughly. It would be desirable for further research not to use undergraduate students as research participants to draw conclusions regarding escalation tendencies in corporate decision-making.
Another noteworthy finding of our analysis is that the time delay between the initial and subsequent investments influences the effect sizes differently in progress than utilization decisions. We find that in progress decisions, effect sizes increase with time. Research must strictly distinguish between the effect of temporal and monetary sunk costs. However, we argue that in progress decisions, elapsed time can be considered an investment in a project. In addition, monetary resources are not invested at one point in time but continuously as the project progresses.
From a managerial perspective, research on the sunk-cost effect provides important insights into consumer behavior. Managers should take into account that the probability to make use of already-paid-for tickets decreases over time. This observation may have advantages and disadvantages, depending on the product or service sold. A service provider with limited capacities (e.g., health clubs, public pools) should consider selling many tickets in advance, to profit from payment depreciation effects. In contrast, service providers interested in a high usage rate (e.g., soccer stadiums, concerts) should make their customers aware of the “precious ticket” they are about to waste when they do not show up.
In progress decisions, companies should pay attention to long running projects and the managers’ increasing tendency to stick to their initial decision as time goes by. In line with research on escalation of commitment, barriers can be implemented that activate a decision-maker’s need to externally justify the project-related decisions or distribute responsibility to various decision-makers. As another example, companies can educate their employees to enhance decision quality. All these factors help reduce organizational inertia when confronted with escalation of commitment.
7.2 Avenues for further research
First, future research should further elaborate on the idea that participants´ background has an effect on the strength of the sunk-cost effect in progress decisions. Yet, although our results of the univariate regressions are very clear we only find a weak result in the multivariate analysis. To date, most research has used students to examine the influence of sunk costs and abstained from participants at higher age. However, the use of student samples may be a double-edged sword. In his second-order meta-analysis on the use of college students in social science research, Peterson (
2001) finds that effect sizes based on student samples frequently differ from effect sizes based on non-students in both direction and magnitude. Therefore, further research should focus on well-educated, professional decision-makers in a higher age rage. Otherwise, the effect sizes of the sunk-cost effect on escalation tendencies may be overestimated.
Second, factors constraining the sunk-cost effect must be investigated further. Consequences for decision-makers, their organizations, and their environment can be quite costly, especially in progress decisions for which sunk costs may foster escalation tendencies. Therefore, identification of constraining factors can assist organizations in implementing institutional barriers to prevent escalation. For example, the pressure to justify each decision externally may weaken escalation tendencies. Research on mental accounting budgets (Heath
1995; Heath and Soll
1996) and financial budgets (Tan and Yates
2002) demonstrates de-escalating commitment in response to sunk costs and may serve to direct additional research. With respect to mental budgets, research also should address the question of why exceeding budgets fosters de-escalation of commitment. Another constraining factor is opportunity costs. Although their impact on the sunk-cost effect in progress decisions is known to reduce escalation tendencies (Northcraft and Neale
1986), their impact on utilization decisions is still questionable. Despite this, information about opportunity costs is available in many everyday decisions. Cunha and Caldieraro (
2009) show that the behavioral sunk-cost effect is a function of the ratio of the invested effort to the opportunity cost. Furthermore, extending these findings to the domain of monetary sunk costs would be particularly useful.
Third, further research should elaborate the effect of time on progress decisions. To disentangle the influence of time and monetary investment decisions, studies should examine cases in which an investment is made at some time t
1 and then the decision to continue is made at some other time t
2, with little investment made between t
1 and t
2. The progress of time between subsequent progress decisions highlights another research avenue: It is possible that the occurrence of further projects or investment alternatives deteriorate the importance of the “old” project as well as the evaluation of the linked investments. In such cases, payment depreciation might also be observable in progress decisions.
Fourth, although research has assessed personal responsibility in progress decisions (e.g., Staw
1976; Schulz-Hardt et al.
2009), we are not aware of any studies that investigate the social context of a decision in utilization decisions. According to literature on sustainable consumption and green attitudes (e.g., Sheth et al.
2011; Urien and Kilbourne
2011), the responsibility for a purchased product may also reinforce the sunk-cost effect. Even Arkes and Blumer (
1985) identify the motive “not to appear wasteful” as a potential reason behind the sunk-cost effect.
Fifth, the sunk-cost effect for utilization decisions was clearly observable. However, it remains unclear whether individuals are aware of this effect. Although the effect has a negative influence, in that individuals deviate from basic economic principles, it may also have a positive side. For example, an already-paid-for product may also serve as a pre-commitment device for consumers. Gourville and Soman (
1998) track attendance of health-club members and find that attendance rate was highest right after the payment was made. Thus, it seems to matter whether consumers unconsciously or consciously use the sunk-cost effect to enhance goal pursuit by pre-committing to alternatives they would otherwise not use or consume. This case might be especially true for activities or services such as gyms or diets that require discipline and perseverance (DellaVigna and Malmendier
2006).
Sixth, in this research we treat usage intensity of flat-rate products as one type of utilization decision. However, these decision situations might differ when choices are between different alternatives. Therefore, we applied a separate dummy-coded meta-regression to account for that circumstance. Indeed, we find some indication that effect sizes for the sunk-cost effect under flat-rate usage are slightly lower. Yet our results are based on a small number of data sets (k = 6). Scant empirical research has explored the impact of sunk costs on flat-rate usage, which provides further research potential.
7.3 Limitations
Although the results of our meta-analysis integrate findings from several studies on the sunk-cost effect, thereby providing new insights into the strength of the effect and its moderators with respect to the underlying decision situation, the analysis also has shortcomings. First, a basic problem of every meta-analysis is that primary studies do not provide all the information needed to make the results perfectly comparable. This problem becomes especially evident when elaborating on the impact of the subject’s age in progress decision for which the proportion of missing values is very high. In order to still be able to perform multivariate analyses data has been imputed which shifts the results for age to insignificance. In addition, the information in each study is subject to the coder’s interpretation. For example, in our analysis the time delay between the initial and subsequent investments was coded high versus medium versus low. However, research might code a time delay as long for a €20 theater ticket purchased 4 weeks ago but code the same time delay of 4 weeks as short in the case of a €1 million business investment. Therefore, it is crucial to interpret the findings in accordance with our coding protocol provided in Appendix
1.
A second limitation of our study is that not all the studies we included are based on data sets collected with the same research design. Most studies use experimental data and examine the sunk-cost effect with hypothetical scenarios. However, we did not exclude data sets obtained from survey or field observations. The small number of cases made a separate analysis impossible. This reveals the problem of comparing effect sizes from different research designs. Therefore, we run our calculations with collapsed categories. In line with this, we did not separately analyze studies on progress decisions conducted with students versus corporate decision-makers. Although we find that participants’ background affects the strength of the effect, we do not have a sufficient database to further elaborate on this issue.
A third limitation pertains to the impact of time on the effect sizes of the sunk-cost effect in progress decisions. Although we only included studies that explicitly manipulate sunk costs, we are aware that our meta-analysis cannot disentangle the sunk-cost effect from other drivers of escalation tendencies. We attribute this to two reasons: first, funding can increase with project time, especially in scenario-based studies with multiple-linked progress decisions. Second, all studies analyzed involve monetary sunk costs, but we cannot rule out that other resources, such as time or effort, might also be invested as the project continues. We leave this issue for further research. Other than these shortcomings, our detailed discussion of sunk-cost effects with respect to utilization and progress decisions offers fruitful insights for further academic discussion.