Question

In the context of loss aversion, identify a true statement about sunk-cost fallacy. Multiple Choice People are reluctant to give up on a venture because of past investment. People tend to report falsely, after the fact, that they accurately predicted an outcome. People disregard prior experiences or failures when making predictions about the possibility of an outcome. People ascribe greater value to things they already own, compared to objects owned by someone else.

Answer 1

The sunk-cost fallacy tries to explain that People are reluctant to give up on a venture because of past investment.

Sunk costs are:

• Costs that have already been incurred by an entity in a certain venture
• Costs that can no longer be recovered.

The sunk cost fallacy tries to explain that the reason people stick with an investment even if they cannot recover the costs thereof is that they are reluctant to simply let go of something they have invested in before.

In conclusion, the sunk cost fallacy shows that people will continue to chase sunk costs simply because they have past investment in that venture.

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