Sunk cost bias

Nabil, A-N., Baliga, S., Besanko, D., 2004. The Sunk Cost Bias in Managerial Pricing decisions. Mimeo. 

Sunk cost bias A tendency to make choices that support past decisions and escalate your commitment to a course of action in which you have invested, even when data indicate you may be on a losing course. After investing so much in the climb, the guides and clients did not follow the two o clock rule to which they had previously agreed. 

Each bias by itself can distort decisions. Even more dangerously, more than one bias may be involved in a single decision and serve to intensify the distortion—e.g., a hastily made decision in response to emergency room overflow that then becomes accepted and difficult to change because of the status quo bias. Or perhaps a head nurse makes a poor decision about nurse overtime in response to the emotional demands of a specific situation, but then continues to implement and defend the decision because of the sunk cost bias—even though the scheduling decision has become manifestly inappropriate. 

Bias can help explain why capable leaders make and accept poor decisions—why a skilled clinician will filter out hazards (overconfidence bias), why a senior leader will not terminate a poor performer he has coached, despite the team member s consistently poor performance (sunk cost bias), and why the treatment team will live with a safety system that delivers weak safety performance (status quo bias). 

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