Andrea paid $6,000 for a used car that has needed many repairs. She dislikes the car and wants to get rid of it, but she is reluctant to sell it because no one will pay more than $3,000 for it. Andrea does not like the idea of not getting back all of the money she spent on the car. What psychological factor associated with behavioral economics explains Andrea's behavior?
A) overvaluing the present relative to the future
B) overconfidence
C) sunk cost fallacy
D) framing bias

Question

Quizplus · Accepted Answer

Andrea's reluctance to sell the car for less than she paid, despite the fact that she dislikes it and it has cost her in repairs, is an example of the sunk cost fallacy. This fallacy occurs when individuals continue a behavior or endeavor as a result of previously invested resources (time, money, or effort), even if they would not make the same decision again. In this case, Andrea is letting her past investment in the car influence her decision-making, rather than considering the current situation and her feelings about the car independently of what she has already spent.

Andrea Paid $6,000 for a Used Car That Has Needed