The original article by Sofis et al. (2015) aims to explore the phenomena of sunk costs and escalation as related to investments and the implications of investing depending on different circumstances. While some scholars have defined the effect of sunk costs as escalation’s subset, others use sunk costs and escalation interchangeably and only focus on exploring one or the other. Thus, the innovativeness of the research entails the clarification of the relationship between the sunk cost effect and escalation by implementing an innovative experimental analog. In the experiment, participants made an initial forced investment (ranging from $5 to $35, assigned randomly) before choosing to complete the project (from $5 to $95, assigned randomly) or to begin a new project without making an additional payment (Sofis et al., 2015). The test indicated a systematic positive relationship between the initial price of investment and the proportion of the choice to complete the project at the highest final investment for participants committing the sunk cost effect.
The findings were instrumental for presenting a functional difference between the sunk cost effect from other varieties of escalation. Also, 54% of research participants showed an overall positive cost effect while 87% of individuals involved completed their projects even in instances when the additional investment was higher than the expected average, which was indicative of escalation (Sofis et al., 2015). The two effects were shown to be differentially influenced by the amount of further investment, thus functionally differentiating escalation from the phenomenon of sunk cost effects. Despite being limited by the use of hypothetical rewards, there is potential to use larger data samples in future studies that can be applied in real-world settings.
Reference
Sofis, M. J., Jarmolowicz, D. P., Hudnall, J. L., & Reed, D. D. (2015). On sunk costs and escalation. The Psychological Record, 65, 487-494. Web.