Sunk Cost Fallacy

In economics, a sunk cost refers to:

• A cost that can be recovered through future sales

• Money that has already been spent and cannot be recovered

• The total cost of production including overheads

• The cost of borrowing money

Which psychologists first coined the idea of cognitive bias that laid the foundation for the study of the sunk cost fallacy?

• Richard Thaler and Hal Arkes

• Amos Tversky and Daniel Kahneman

• Catherine Blumer and Kahneman

• Daniel Kahneman and Richard Thaler

Hal Arkes and Catherine Blumer's ski trip experiment showed that:

• People always choose the cheaper option

• People choose the option with higher initial investment, even if it's less enjoyable

• People avoid making decisions when both options have sunk costs

• People make decisions only based on future benefits

Which psychological factor describes avoiding losses because losing feels worse than gaining feels good?

• Framing effect

• Loss aversion

• Unrealistic optimism

• Personal responsibility bias

In the Concorde Fallacy, governments continued funding the supersonic jet project because:

• The project was highly profitable

• They believed the investment could still be recovered

• The initial investment was already too high to abandon

• Airlines demanded it

Which factor involves overestimating one's chances of success and underestimating chances of failure?

• Framing effect

• Unrealistic optimism

• Loss aversion

• Risk aversion

Staying for an entire movie you dislike because you've already bought the ticket is an example of:

• Opportunity cost fallacy

• Sunk cost fallacy

• Anchoring bias

• Endowment effect

The decision to continue playing a slot machine because it 'hasn't paid out in a while' reflects:

• Random outcome bias

• Sunk cost fallacy and gambler's fallacy

• Loss aversion

• Status quo bias

Which of the following is NOT a recommended strategy to avoid the sunk cost fallacy?

• Set measurable goals before investing

• Use data-based decision making

• Review progress regularly

• Base decisions on past investments

The main lesson from the Tennessee-Tombigbee Waterway Project case is:

• Completing a project is always better than abandoning it

• Past investment should not justify continued spending when benefits are doubtful

• Infrastructure projects should always be completed once started

• Larger sunk costs guarantee better returns