Honesty and fairness reduce the sunk-cost effect

Abstract

The sunk-cost effect (SCE) is the tendency to continue investing in an unsuccessful activity because of previous investments that cannot be recovered. We examine the SCE when continued investment is dishonest and unfair, and whether moral identity predicts decision-making in sunk-cost moral scenarios. Moral identity is the degree of importance of being moral to one’s sense of identity, and prior research has found moral identity predicts moral behaviour. We find that the SCE was smaller if continuing with the sunk-cost decisions were dishonest and unfair, and stronger moral identity predicted lower likelihood to continue investment if doing so was dishonest and unfair. Participants were also more likely to cite moral reasons for their decisions than sunk-cost reasons in scenarios that sunk costs were high and continuing would be dishonest and unfair. We suggest people place a greater importance on being honest and fair compared to paying off previous investments, especially for those with a stronger moral identity. These findings may help explain decision-making in situations where sunk costs are at odds with moral considerations.