How to prevent a sinking ship: choice architecture as a means of reducing the sunk cost effect

Abstract

The sunk cost effect is a famously discussed subject and has been known for many years, yet the issue is still prevalent in a real world setting. This paper advocates the use of choice architecture in order to mitigate the sunk cost effect on management. Existing literature has not yet examined the combination of these two ?elds, this paper marks the start for research on this relationship and calls upon further research on the subject. The goal of this paper is to raise awareness for the use of choice architecture in order to reduce the sunk cost effect on management. The paper speci?cally focuses on the framing aspect of choice architecture and introduces two new forms of framing; the uninterrupted and interrupted frames. The effects of these frames are evaluated by conducting a survey, though the results are minimal, they do indicate towards the possibilities, and warrant future research. Choice architecture allows for a wide array of uses, and correct application should improve the decision-making process and reduce the effect of biases caused by heuristics and bounded rationality. For management this should improve project decisions and reduce losses for organizations that would otherwise result from the sunk cost effect.