Thesis (Ph.D.) - University of St Andrews, February 2008.

Thesis (M.S.)--Ohio University, August, 2004. / Includes bibliographical references (p. 79-85).

Thesis (M.S.)--Ohio University, August, 2004. / Title from PDF t.p. Includes bibliographical references (p. 79-85)

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Sunk cost accounting refers to the empirical finding that individuals tend to let their decisions be influenced by costs made at an earlier time in such a way that they are more risk seeking than they would be had they not incurred these costs. Such behaviour violates the axioms of economic theory which states individuals should only consider incremental costs and benefits when executing investments. This dissertation is concerned whether the pervasive sunk cost phenomenon extends to corporate acquisitions and financial markets. 122 students from the University of St Andrews participated in three experiments exploring the use of sunk costs in interactive negotiation contexts and financial markets. Experiment I elucidates that subjects value the sunk cost issue higher than other issues in a multi-issue negotiation. Experiment II illustrates that bidders are influenced by the sunk costs of competing bidders in a first price, sealed-bid, common-value auction. In financial markets their exists an analogous concept to sunk cost accounting known as the disposition effect. This explains the tendency of investors to sell “winning” stocks and hold “losing” stocks. Experiment III demonstrates that trading strategies in an experimental equity market are influenced by a pre-trading brokerage cost. Not only are subjects influenced in the direction that reduces the disposition effect but also trading is diminished. Without the brokerage cost there was a significant disposition effect.

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The present paper provides further evidence on the importance of sunk costs as determinant of the turnover, entry, and exit of firms by studying the Austrian manufacturing industry using a 14-year panel. This study explicitly considers sunk costs related to investment in dedicated intangible assets such as investment relating to organizational and goodwill capital. The empirical results confirm the relevance of sunk costs as mobility barriers, their symmetry in respect to entry and exit and suggest that the influence of sunk costs is robust to aggregation. Sunk costs relating to capital expenditure and to organizational capital are found to be symmetric. Sunk costs relating to advertising expenditures seem to be only barriers to entry but not mobility barriers. Industry growth and profitability growth are found to be asymmetric, having a positive influence on entry and a negative on exit. Export growth is found to reduce the turnover of firms and to have a negative effect on exit suggesting that the decision to export may be associated with substantial sunk costs. (author's abstract) / Series: Working Papers Series "Growth and Employment in Europe: Sustainability and Competitiveness"

Thesis (Ph. D.)--University of California, San Diego, 2007. / Title from first page of PDF file (viewed January 11, 2008). Available via ProQuest Digital Dissertations. Vita. Includes bibliographical references (p. 61-63).

Effects of cost and accuracy on the decision to request and to utilize expert advice were investigated in 2 experiments using a choice task. Experiments 1 and 2 found that experienced accuracy significantly predicted requesting expert advice. Participants in Experiment 2 used very inaccurate experts to rule out the expert's option. Cost affected requesting advice in Experiment 1 only when cost was able to exceed the amount that could be gained for a correct choice. Experiment 2 found a significant interaction between cost and experienced accuracy. Both experiments found requesting advice was the only significant predictor for changing answers. The results did not support an adherence to sunk costs in the decision to change answers.

Two of the most robust results from dynamic competitive models of industrial organization suggest that higher sunk cost industries should exhibit (1) higher intertemporal variability in the market value of their firms, and (2) lower intertemporal variability in the size of their industries. These predictions have done well empirically. This paper argues on theoretical and empirical grounds that depreciation generates countervailing effects.