Working Paper:

To the Depths of the Sunk Cost: Experiments Revisiting the Elusive Effect (with George Beknazar-Yuzbashev and Mateusz Stalinski)

Abstract: Despite being often discussed both in practice and academic circles, the sunk cost effect remains empirically elusive. Our model based on reference point dependence suggests that the traditional way of testing it by assigning discounts may not produce the desired effect. Instead, we evaluate it across the gain-loss divide by randomizing the price (low, medium, or high) of a ticket to enter a real-effort task and observing its effect on playtime. Despite a strong intervention – we vary the sunk cost by $2 for a 14-minute task and the sample size of N=1,806, we find only a small effect (0.09 SD or 1.1 minutes). We further explore the economic applications of the sunk cost effect in a field experiment on YouTube in which we randomize whether the time until a pre-video ad becomes skippable is shortened (0 s), default (5 s), or extended (10 s). We report two results. First, the intervention had an insignificant effect on video engagement (the time spent following the ad segment). Second, we detect a sizeable negative effect on the extensive margin more users left before the video started in the extended treatment (5.3 pp. difference relative to the shortened treatment). Taking the results of both studies together, we offer a cautionary tale that applying even the most intuitive behavioral effects in policy settings might prove challenging.

Work in Progress:

Is Visual Salience Economic Salience? 

Optimal Decision Time (with Alex Imas, Michael Kuhn, and Collin Raymond)

An Eye for an Eye: Experiments on Mechanisms of Political Discrimination (with Mateusz Stalinski)

Assessing the Assumptions of the Quasi-hyperbolic Time Preferences (with Daniel Bartels)