One of our group is obsessed with the sunk-cost falacy. He'll be glad to know that its also on the mind of one of the current front-runners for the US Presidency Barack Obama. See Levitt's blog for Jan 12th
I don't know what the obsession is but I was thinking about sunk costs recently and wondering why people do seem to care about them- is that the fallacy & could one discover neural substrates that explain it? For example a sunk cost reflects a previous decision and because of cog' dissonance etc one may not wish to admit one was wrong? Could one do some functional imaging to look at this?
good idea. Im sure Ken has some references. Given how difficult we find it to get rid of sunk costs there must be a relatively straightforward biological basis for this.
A test would need to distinguish between different types of sunk cost.Say I am a manager and I inherit sunk costs (i.e. it was somebody else's decision) then it may be easier for me to disregard them than if it was my decision which requires admitting I was wrong.
This is really fascinating, mainly for the sheer amount of candidate explanations out there. I'm going to approch this from the Psychology side only (My maths and micro weren't good enough for Chicago, Liam!).
The fallacy casts light on how people model pasts and desirable futures. There's little functional point in recognising one has made a stupid decision in the past unless one makes changes here and now to staunch the flow of good money after bad, or to self-correct to lessen the likelihood of a repeated mistake.
There's much research done on people's ideal selves and what they want to be; there's lesss done on how people are able to accurately gauge what stops them from becoming their ideal self. Digging a deeper hole is partly an instance of not knowing how to move towards a better situation.
There's a lot of work done on counterfactual thinking ('what might have been'); however, much of this is very lab-based and lacking in ecological validity. People are seldom asked how could things be different in their life now and what would have to be changed to accomplish this. See Johnson-Laird.
Another area worth consdiering is people's search for stability: sticking to a poor investment is a maintenance of the status quo, and if we try to link this up with counterfacatual reasoning, we may find that people simply lack the imagination to both stop a behaviour and fill the vacuum with a new one.
If one is acting as part ogf a larger group, say a fund manager, then Vaihinger's 'as if' philosophy is pertinent. In this case, in order to come to work, you've got to be able to demonstrate that you're on track and that you are not mistake-prone; consequently, there's much social pressure to make you act as if you have in fact made a good decision, and that it wil bear fruit in time.
Kevin, the neuroeconomic angle on this looks deadly.
4 comments:
I don't know what the obsession is but I was thinking about sunk costs recently and wondering why people do seem to care about them- is that the fallacy & could one discover neural substrates that explain it?
For example a sunk cost reflects a previous decision and because of cog' dissonance etc one may not wish to admit one was wrong?
Could one do some functional imaging to look at this?
good idea. Im sure Ken has some references. Given how difficult we find it to get rid of sunk costs there must be a relatively straightforward biological basis for this.
A test would need to distinguish between different types of sunk cost.Say I am a manager and I inherit sunk costs (i.e. it was somebody else's decision) then it may be easier for me to disregard them than if it was my decision which requires admitting I was wrong.
This is really fascinating, mainly for the sheer amount of candidate explanations out there. I'm going to approch this from the Psychology side only (My maths and micro weren't good enough for Chicago, Liam!).
The fallacy casts light on how people model pasts and desirable futures. There's little functional point in recognising one has made a stupid decision in the past unless one makes changes here and now to staunch the flow of good money after bad, or to self-correct to lessen the likelihood of a repeated mistake.
There's much research done on people's ideal selves and what they want to be; there's lesss done on how people are able to accurately gauge what stops them from becoming their ideal self. Digging a deeper hole is partly an instance of not knowing how to move towards a better situation.
There's a lot of work done on counterfactual thinking ('what might have been'); however, much of this is very lab-based and lacking in ecological validity. People are seldom asked how could things be different in their life now and what would have to be changed to accomplish this. See Johnson-Laird.
Another area worth consdiering is people's search for stability: sticking to a poor investment is a maintenance of the status quo, and if we try to link this up with counterfacatual reasoning, we may find that people simply lack the imagination to both stop a behaviour and fill the vacuum with a new one.
If one is acting as part ogf a larger group, say a fund manager, then Vaihinger's 'as if' philosophy is pertinent. In this case, in order to come to work, you've got to be able to demonstrate that you're on track and that you are not mistake-prone; consequently, there's much social pressure to make you act as if you have in fact made a good decision, and that it wil bear fruit in time.
Kevin, the neuroeconomic angle on this looks deadly.
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