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Sunk Cost Effect

Sunk Cost Effect Definition

With the Sunk Cost Effect, people have been proven more likely to continue on in vain with a project or plans for which they have already invested money, time or effort, even if they no longer want to or there may be more potential losses to come. This is because they take the money already lost in to account – not thinking rationally about the fact that this money is completely irretrievable and therefore a moot point that shouldn’t be part of their decision-making process.

Experiments conducted by Arkes and Blumer in 1985 revealed that people would actually be more inclined to do something less enjoyable if they perceived the financial value of it to be greater or to commit to doing something they didn’t want to if they’d already paid for it. Have you ever not wanted to attend a concert, film or other event because either something that promised to be much more enjoyable was on offer or because you felt particularly ill and just wanted to stay in bed, but you went anyway solely because you didn’t want to ‘lose’ the money you had spent? The money was gone either way but forcing yourself to attend made you feel like you had gotten some worth out of it when really you would have been happier had you just accepted the loss and done what you wanted.

In web marketing, this is a particularly valuable tool and can be used in many ways. Introducing reminders that show customers how close they are to checking out and the time they’ve already invested on your site will automatically kick in their sunk cost sensibilities and increase conversion. Equally, the Sunk Cost Effect can be great for post-sale purchases: someone’s just bought an expensive computer from you? Offering protective cases or anti-virus software will tap in to their fear that something might happen to that computer and therefore render the money they’ve already spent wasteful.

Sunk Cost Effect Meaning

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