Please use this identifier to cite or link to this item: https://doi.org/10.1287/mnsc.2016.2651
Title: Sunk Cost Fallacy in Driving the World’s Costliest Cars
Authors: HO TECK HUA 
Png Paak Liang Ivan 
SADAT REZA 
Issue Date: Apr-2018
Publisher: INFORMS Inst.for Operations Res.and the Management Sciences
Citation: HO TECK HUA, Png Paak Liang Ivan, SADAT REZA (2018-04). Sunk Cost Fallacy in Driving the World’s Costliest Cars. Management Science 64 (4) : 1761-1778. ScholarBank@NUS Repository. https://doi.org/10.1287/mnsc.2016.2651
Rights: CC0 1.0 Universal
Abstract: We develop a behavioral model of durable good usage with mental accounting for sunk costs. It predicts higher-than-rational usage that attenuates at a rate that increases with sunk costs. Singapore government policy varied the sunk cost of buying a new car. Using Singapore data, we estimate the elasticity of driving with respect to sunk costs to be 0.048, which implies that government policy between 2009 and 2013 was associated with 86 kilometers per month, or 5.6%, more driving. The results are robust to specifying sunk costs as relative to buyer income and estimation with Hong Kong data. We believe this to be the first field evidence of the sunk cost fallacy in usage of a major durable good.
Source Title: Management Science
URI: https://scholarbank.nus.edu.sg/handle/10635/168249
ISSN: 0025-1909
DOI: 10.1287/mnsc.2016.2651
Rights: CC0 1.0 Universal
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