| Summary: | Sunk costs have been
known to elicit violations of expected utility theory, in particular, the
independence or cancellation axiom. Separately, violations of the stochastic
dominance principle have been demonstrated in various settings despite the fact
that descriptive models of choice favored in economics deem such violations
irrational. However, it is currently unknown whether sunk costs also yield
stochastic dominance violations. In two studies using a tri-colored roulette
wheel choice task with non-equiprobable events yet equal payoffs, we observed
that those who had sunk costs selected a stochastically dominated option
significantly more than did those who had no costs. Moreover, a second study
revealed that people chose a stochastically dominated option significantly more
when the expected value was low compared to high. A model comparison of
psychological explanations demonstrated that theories that incorporate a
reference shift of the status quo could predict these sunk cost-based
violations of stochastic dominance whereas other models could not.
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