Analysis of the Sunk Cost Fallacy

In this work I analyze such behavioral bias as 'sunk cost fallacy'. Due to this problem people do take into account sunk costs, even though they should not do it according to classical economic theory. I consider such factor as past expectations about future as the main reason of the sunk cost fallacy. With a help of the theoretical model, which included the formation of the reference expectations of the individual and its inconsistence with true conditions which the individual meets, I show that sunk cost effect can be a result of a rational choice of economic agent. What is more, I show that the person takes into account future periods after the end of the failing project . As reference expectations of the individual are formed with expectations in all past periods and have long-lasting effect, it results in the fact that longer life expectancy increases sunk cost effect. This theory was tested on the data which I had collected by online questionnaires. I looked at the correlation of the age of the person and his tendency to perform sunk cost fallacy. And I found out that this correlation is negative, but small and insignificant, what confirms my idea regarding not important role of age in the formation of sunk cost fallacy, but it contradicts the findings of previous researchers. All in all, sunk cost fallacy is a big problem and it should be explored.