Paying for Sunk Costs
Interesting result found on Scientific Blogging about how younger people are more susceptible to a common form of fallacious reasoning. Young people are more likely to keep watching a bad movie if they’ve paid for it than if it was free. Old people are as inclined or disinclined to keep watching whether they’ve paid or not. Interesting, for sure. The oldies come out as more rational. I’m not sure I agree with the psychologist’s reasoning about the source of the disparity between young and old, though. There’s another explanation waiting in the wings–the value of time for young people is less than it is for older people since they have more of it. That probably doesn’t explain everything, but you’re much more likely to hear an older person say “life’s too short to watch bad movies.”
Sunk Cost Fallacy And Positivity – Why Young People Will Finish Watching A Bad Movie
Submitted by News Account on 10 July 2008 – 12:00am. Psychology
The economic and psychological term known as “sunk-cost fallacy” is a bias that leads someone to make a decision based solely on a previous financial investment. For example, a baseball fan might attend every game of the season only because he already purchased the tickets. But not everyone would force themselves to brave the pouring rain for a single game in one season simply because they previously paid for the seats.
So who is more likely to commit or avoid the sunk-cost fallacy and why? In a recent study, psychologists JoNell Strough, Clare Mehta, Joseph McFall and Kelly Schuller from West Virginia University found that younger adults were more likely to commit to a situation if they had already invested money into it, and that older adults showed a more balanced fiscal perspective of the same situation.
To get to this conclusion, the researchers presented college students and senior citizens with two vignettes to test how likely each age group would be to watch a boring, paid-for movie versus a boring, free movie.
The first vignette specifically read, “You paid $10.95 to see a movie on pay TV. After five minutes, you are bored and the movie seems pretty bad”; the other vignette did not include a cost. Participants then selected from five options regarding their projected time commitment—stop watching entirely, watch for ten more minutes, watch for twenty more minutes, watch for thirty more minutes or watch until the end.
The results in the July issue of Psychological Science, show the older adults spent the same amount of time watching the movie regardless of monetary investment. In contrast, the young adults chose to invest more time in the paid-for movie than the free movie in order to avoid wasting $10.95. The psychologists attribute the distinction between younger and older peoples’ decisions to differences in the way each group thinks about gains versus losses.
“Younger adults show a negativity bias,” Strough explained. “They weigh negative information, such as the lost investment, more heavily than positive information and so they try to ‘recover’ the lost investment by investing more time.”
On the other hand, older adults are more likely to view the positive side of situations; therefore, their decisions reflect a more balanced view of gains and losses. According to the psychologists, older adults’ more balanced view may help them recognize that, once made, this type of investment cannot be recovered simply by committing more time to the activity.