Events

Professor Binglin Gong
Research Professor
East China Normal University

In our newly designed sequential search experiments, we test how sunk cost affect decision making and distinguish it from the effect of people’s marginal mental search cost, which increases over the number of searches. We find evidence that sunk cost affect search decision in a quadratic way: reservation value first decreases as sunk cost goes up and then increases after certain threshold, which can be a reason for the phenomenon of under search and recall found in previous studies. This is consistent with the loss aversion theory.