Sunk cost fallacy in driving the world’s costliest cars

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 elas...

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Main Authors: Ho, Teck-Hua, Png, I. P. L., Reza, Sadat
其他作者: Nanyang Business School
格式: Article
語言:English
出版: 2019
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在線閱讀:https://hdl.handle.net/10356/105825
http://hdl.handle.net/10220/48747
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機構: Nanyang Technological University
語言: English
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總結: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.