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Abstract

A general economic principle is that when evaluating the costs of a decision, sunk costs should not be considered, and the decision-maker should consider only those costs incurred as a result of making that decision. However, anecdotal and empirical evidence has shown that people are influenced by sunk costs when making decisions, thereby committing the sunk-cost fallacy. A corpus of research has established that this fallacy occurs among nations and cultures to differing extents or degrees. None of the earlier studies, however, focused on Nigerians. This study, therefore, investigates whether Nigerians, too, commit this fallacy and then identifies factors that affect Nigerians' susceptibility to the fallacy. Employing a binary logit model showed that about 49 per cent of the respondents to questions based on a decision-making vignette committed the sunk-cost fallacy. The results also showed that locus of cost responsibility (whether the decision maker or another person bore the cost on behalf of the decision maker) and ethnicity (whether the decision maker is Yoruba or not) were significant determinants of susceptibility to sunk-cost fallacy. This suggests that in Nigeria, the sunk-cost fallacy is intrapersonal and more prevalent among Yorubas than among Hausas or Igbos. Therefore, the sunk-cost fallacy is ubiquitous and more likely in personal decisions than decisions made on behalf of others.

Keywords

Nigeria Self-justification Theory Sunk Cost Sunk-cost Effect Sunk-cost Fallacy

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Biala, M. I. (2022). Determinants of Susceptibility to Sunk-Cost Fallacy: A Nigerian Case Study. Management & Economics Research Journal, 4(2), 83-105. https://doi.org/10.48100/merj.2022.231
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Musa Ilias Biala, Department of Economics and Development Studies, Kwara State University, Malete (Nigeria)

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Vol. 4 No. 2 (2022): September
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Submitted 09 June 2022
Accepted 21 July 2022
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