Prospect theory and sunk costs effect are two reasons why people
A)engage in escalation of commitment.
B)make nonprogrammed decisions rather than programmed decisions.
C)encourage employee involvement.
D)engage in satisficing.
E)define problems in terms of preferred solutions.

Question

Quizplus · Accepted Answer

Prospect theory explains how people make decisions based on potential losses or gains rather than the final outcome, leading them to irrationally escalate commitment to avoid losses. The sunk cost effect describes how individuals continue a behavior or endeavor as a result of previously invested resources (time, money, or effort), also leading to escalation of commitment. Both concepts explain why individuals might irrationally continue investing in a losing proposition.

Prospect Theory and Sunk Costs Effect Are Two Reasons Why