Refer to the scenario below to answer the following questions.
Decision-making Biases (Scenario)
Frank is president of Mega Manufacturing, a Canadian company that makes automobile parts. Sales and profits are down sharply this quarter, and Frank needs to analyze the series of events that have led to the poor performance. Frank begins by reviewing his recent interactions with Mike, the vice-president of sales.
-Mike asked Frank to authorize the expenditure of an additional $30,000 to continue to pursue the contract with the Japanese car maker, even though there is no indication that they will reconsider their decision. As Mike explained, "My sales team has already spent close to $100,000 in time and effort trying to win that contract. What's another $30,000 to try to convince them to switch to Mega?" Mike's fixation on past expenditures demonstrates which of the following?
A) confirmation bias
B) hindsight bias
C) overconfidence bias
D) sunk costs error
E) anchoring effect

Question

Quizplus · Accepted Answer

Mike's fixation on past expenditures and the idea that they should continue spending money to pursue the contract despite no indication of success demonstrates the sunk costs error, also known as the sunk cost fallacy. This bias occurs when decision-makers continue to invest in a failing project or decision because they have already invested resources, rather than objectively evaluating whether the investment is likely to be successful in the future.

Refer to the Scenario Below to Answer the Following Questions