How does cognitive dissonance influence the sunk cost effect?

Shao Hsi Chung, Kuo-Chih Cheng

Research output: Contribution to journalArticle

Abstract

Background: The sunk cost effect is the scenario when individuals are willing to continue to invest capital in a failing project. The purpose of this study was to explain such irrational behavior by exploring how sunk costs affect individuals’ willingness to continue investing in an unfavorable project and to understand the role of cognitive dissonance on the sunk cost effect. Methods: This study used an experimental questionnaire survey on managers of firms listed on the Taiwan Stock Exchange and Over-The-Counter. Results: The empirical results show that cognitive dissonance does not mediate the relationship between sunk costs and willingness to continue an unfavorable investment project. However, cognitive dissonance has a moderating effect, and only when the level of cognitive dissonance is high does the sunk cost have significantly positive impacts on willingness to continue on with an unfavorable investment. Conclusion: This study offers psychological mechanisms to explain the sunk cost effect based on the theory of cognitive dissonance, and it also provides some recommendations for corporate management.

Original languageEnglish
Pages (from-to)37-45
Number of pages9
JournalPsychology Research and Behavior Management
Volume11
DOIs
Publication statusPublished - 2018 Mar 1

Fingerprint

Cognitive Dissonance
Costs and Cost Analysis
Taiwan
Economics
Psychology

All Science Journal Classification (ASJC) codes

  • Psychology(all)
  • Psychiatry and Mental health

Cite this

@article{199709e03582415c9bd05ea4bf10a308,
title = "How does cognitive dissonance influence the sunk cost effect?",
abstract = "Background: The sunk cost effect is the scenario when individuals are willing to continue to invest capital in a failing project. The purpose of this study was to explain such irrational behavior by exploring how sunk costs affect individuals’ willingness to continue investing in an unfavorable project and to understand the role of cognitive dissonance on the sunk cost effect. Methods: This study used an experimental questionnaire survey on managers of firms listed on the Taiwan Stock Exchange and Over-The-Counter. Results: The empirical results show that cognitive dissonance does not mediate the relationship between sunk costs and willingness to continue an unfavorable investment project. However, cognitive dissonance has a moderating effect, and only when the level of cognitive dissonance is high does the sunk cost have significantly positive impacts on willingness to continue on with an unfavorable investment. Conclusion: This study offers psychological mechanisms to explain the sunk cost effect based on the theory of cognitive dissonance, and it also provides some recommendations for corporate management.",
author = "Chung, {Shao Hsi} and Kuo-Chih Cheng",
year = "2018",
month = "3",
day = "1",
doi = "10.2147/PRBM.S150494",
language = "English",
volume = "11",
pages = "37--45",
journal = "Psychology Research and Behavior Management",
issn = "1179-1578",
publisher = "Dove Medical Press Ltd.",

}

How does cognitive dissonance influence the sunk cost effect? / Chung, Shao Hsi; Cheng, Kuo-Chih.

In: Psychology Research and Behavior Management, Vol. 11, 01.03.2018, p. 37-45.

Research output: Contribution to journalArticle

TY - JOUR

T1 - How does cognitive dissonance influence the sunk cost effect?

AU - Chung, Shao Hsi

AU - Cheng, Kuo-Chih

PY - 2018/3/1

Y1 - 2018/3/1

N2 - Background: The sunk cost effect is the scenario when individuals are willing to continue to invest capital in a failing project. The purpose of this study was to explain such irrational behavior by exploring how sunk costs affect individuals’ willingness to continue investing in an unfavorable project and to understand the role of cognitive dissonance on the sunk cost effect. Methods: This study used an experimental questionnaire survey on managers of firms listed on the Taiwan Stock Exchange and Over-The-Counter. Results: The empirical results show that cognitive dissonance does not mediate the relationship between sunk costs and willingness to continue an unfavorable investment project. However, cognitive dissonance has a moderating effect, and only when the level of cognitive dissonance is high does the sunk cost have significantly positive impacts on willingness to continue on with an unfavorable investment. Conclusion: This study offers psychological mechanisms to explain the sunk cost effect based on the theory of cognitive dissonance, and it also provides some recommendations for corporate management.

AB - Background: The sunk cost effect is the scenario when individuals are willing to continue to invest capital in a failing project. The purpose of this study was to explain such irrational behavior by exploring how sunk costs affect individuals’ willingness to continue investing in an unfavorable project and to understand the role of cognitive dissonance on the sunk cost effect. Methods: This study used an experimental questionnaire survey on managers of firms listed on the Taiwan Stock Exchange and Over-The-Counter. Results: The empirical results show that cognitive dissonance does not mediate the relationship between sunk costs and willingness to continue an unfavorable investment project. However, cognitive dissonance has a moderating effect, and only when the level of cognitive dissonance is high does the sunk cost have significantly positive impacts on willingness to continue on with an unfavorable investment. Conclusion: This study offers psychological mechanisms to explain the sunk cost effect based on the theory of cognitive dissonance, and it also provides some recommendations for corporate management.

UR - http://www.scopus.com/inward/record.url?scp=85045310058&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85045310058&partnerID=8YFLogxK

U2 - 10.2147/PRBM.S150494

DO - 10.2147/PRBM.S150494

M3 - Article

AN - SCOPUS:85045310058

VL - 11

SP - 37

EP - 45

JO - Psychology Research and Behavior Management

JF - Psychology Research and Behavior Management

SN - 1179-1578

ER -