Date of Defense

4-27-2021

Date of Graduation

5-2021

Department

Psychology

First Advisor

Anthony DeFulio

Second Advisor

Mark Rzeszutek

Third Advisor

Jonathan Mark Hochmuth

Abstract

The sunk cost effect occurs when time, money, or effort are continued to be invested based on previous investments rather than current factors. In previous studies, participants have committed millions of dollars in hypothetical scenarios based on prior investments made. This mirrors examples of real-life decision-making as well, such as continued investment decisions by businesses and governments that are based on previous money and efforts rather than current effectiveness of these outcomes. For example, rhetoric surrounding the Vietnam war consisted the importance of not withdrawing given the previous investment of lives and cost despite it being a losing venture. One factor that may explain this decision-making error is the role of uncertainty. Those who display the sunk cost effect may be more likely to base their decisions due to being uncertain of the outcome of their investments. While there has been extensive research on the sunk cost effect, research on the role of uncertainty is limited. The purpose of this study was to explore the role of uncertainty in the sunk cost effect through hypothetical decision-making scenarios. Students from Western Michigan University were asked to answer questions consisting of two different scenarios previously used in research on the sunk cost effect. Sunk cost was measured by their reported likelihood to continue investing during different hypothetical scenarios and various levels of prior investment or project completion. In this study, significant factors that influenced how likely participants were to invest in completing was level of previous effect and uncertainty of the outcomes based on continued investment. Uncertainty and level of previous investment increased the likelihood of participants of continuing to invest in both hypothetical scenarios. There did not appear to be an interaction between uncertainty, level of previous investment, or scenario. Therefore, uncertainty seems to have a consistent effect of increasing the likelihood to invest regardless of previous level of investment or the situation.

Access Setting

Honors Thesis-Restricted

Restricted to Campus until

12-10-2021

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