Sunk cost bias is when a person invests more time waiting for an outcome than they should, just for the reason that they have already invested a lot of time for this outcome. For example, consider waiting in line. How long will you wait in line before you decide it’s not worth it? Or rather, how long will you stay in line, just because you already spent so much time waiting in the line. Some may call this stubbornness, but researchers have been studying this behavior in the field of neuroeconeomics. This area of study seeks to explain the mechanisms behind human decision making. When Dr. Brian Sweiss from the university of Minnesota came to speak earlier this semester, he told us how he has been studying this behavior in a mammalian model organism- rats. Since rats are mammals, they have a similar neural circuit to humans, and so research can be done on them, and the results can be reasonably translated over to humans. It was found that rats and humans both spend a lot of time “foraging” or trying to make a decision rather than making a decision quickly. Humans also don’t always choose the most rational choice because they are not immune to the influence of sunk costs in their decision making. This Many confounding factors also come into play, so it’s difficult to study exactly why we make the decisions we do. His research has not yet come to a conclusion and is ongoing, so perhaps his lab might find something completely unexpected as they investigate deeper.
Another article, “Time varying Risk Aversion” can be compared to the aforementioned one. Here, the study followed Italian bankers and their likelihood to take risk in stocks after the large economic crisis in 2008. Risk aversion is where one avoids unnecessary risk and prefers to remain more cautionary in their choices. This can be taken in conjunction with foraging behavior, as one must balance risk aversion with the aversion of wasting time, yet still making the best decision. One main motivator for financial decisions was thought to be fear, which was proven to not have as big as an affect in this study as previously thought. It does however reduce rationality, and leads to loss in some cases. In this study, investors made poor choices after the 2008 crisis and sold their stocks at less than opportune times, losing money in the process. This was even seen in the classic Pavlov experiment, where fear was a large influence of behavior. However, it is still not clear how much fear can affect risk aversion, and how long fear can affect behavior.
We all make many decisions every day, and no matter how seemingly insignificant or small, our brain works hard to assess every situation and act accordingly. Acquiring more knowledge about human tendencies when making decisions will definitely appeal to more than just the scientific community, but the average person as well, as it’s a common behavior. With these two studies in particular, it can be seen that our knowledge in this area is still inconclusive, but has many interested in knowing more about it. Knowing more about decision making behavior will help in making even more critical and hopefully, rational decisions.
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