Money Investments in Decision-Making: Findings

¶ … Money Investments in Decision-Making: Findings of an in-Class Experiment

The following paper presents the elements of a recent experiment conducted in the examination of sunk-costs of both time and money. There is a noted tendency for individuals to make irrational decisions based on past investments of money, and it has been suggested that time investments do not cause the same effect. This experiment tested this conclusion by presenting various scenarios with varying investments of time and money in survey form to a group of college students, in order to determine which factors influenced decision making. The results of this experiment suggest that time investments can actually have a bigger influence than monetary investments.

Introduction

The concept of sunk-costs, previous costs that have been placed towards a given choice that cannot be recouped regardless of the future outcome, is a phenomenon that has long intrigued psychologists and economists alike. The irrationality of behavior that results from the consideration of these sunk costs, where individuals base future decisions on the amount of sunk-costs involved rather than on future costs and potentials as would be more rational, is well-documented when specifically monetary costs are considered. When the issue involved time instead of or in addition to money, however, it is not actually at all clear whether sunk-costs operate the same way or not, and it has been suggested that time is not viewed the same way unless it is monetized (Soman 2001). This experiment set out to investigate this claim.

Methods

The method for this experiment was a very straightforward survey technique, with an instrument created expressly for the purposes of the experiment distributed to the sample population. Responses to the various scenarios presented by the scenario were then collected and summarily analyzed in an attempt to determine what influence time and money had as separate sunk-costs in scenarios that presented very similar choices. As the experiment was conducted in the classroom and without future publication for a wider audience planned, no effort to maintain confidentiality was made, although survey instruments were completed anonymously and specific identities corresponding to responses were not known to the researcher in the initial collection or analysis of the collected data.

Subjects/Participants

The participants in this study were those enrolled in the class in which the experiment was taking place, making for a rather homogenous groups of individuals in terms of age, educational level, and certain other demographics. The entire planned population also did not complete the entire survey, with only seventeen responses for the first condition on the instrument and eighteen responses for the second condition being recorded, while the full host of twenty-two subjects gave recordable responses for the third and fourth conditions on the instrument. The variations in populations for each of the responses makes the conclusions drawn and the comparability of the results somewhat more suspect.

Apparatus

The only materials needed for the completion of this research were the printed survey instruments themselves (and, of course, the writing implements necessary for the respondents to complete these surveys). The instruments were created using basic word-processing software (the latest version of Microsoft Word, which is a basic component of the Microsoft Office suite of products), which allowed for the easy organization of the instrument as well as the textual presentation of the various conditions. The instrument was created so that it could be distributed and completed electronically as well as in hard paper-and-ink formats, and the latter was selected for this particular small-population experiment.

Design

The design of the survey instrument utilized is very straightforward, with each of the four conditions presented as a block of text and a simple "yes" or "no" choice given at the end of the condition as to whether or not the respondent would stay with the original course of action -- the one that contained sunk-costs of time and/or money -- or not. Tick boxes were presented alongside the yes or no choices allowing respondents and the researchers to obtain a great deal of clarity in the decision made. A Likert scale representing the desirability of staying with the original course of action was also presented at the end of each condition, providing a greater degree of detail in the responses provided by each subject and allowing for greater assessment of correlation and comparability.

Procedure

Just as with the development of the instruments and the selection of the experiments subjects, the procedure by which the experiment was carried out was very straightforward and simple. Following the development and printing of the instruments, they were then distributed to the population for immediate responses, and were then collected after completion. The results from the individual instruments were then collated and basic elements of statistical analysis were conducted, including the percentage of respondents that said "yes" to each condition (which gives the percentage of those who responded "no," of course), the mean levels of desirability for staying with the original course of action in each scenario, and other similar summary statistics. From these, it was hoped that certain conclusions regarding the differing perception of time and money as sunk costs would emerge.

Results

Given such a small population, it is likely that the results of this study are not necessarily reliable when it comes to generalization to larger populations. The fact that the results are not especially strong also suggests that there might be a problem in this regard -- there were no very strong statistics in any of the conditions, making it difficult to draw very definite conclusions. There were some observable trends in the data that suggest possible correlations with the effects of time and money sunk costs in the decision making process of the respondents, however, and even if they weren't especially strong they warrant further investigation.

The mean desirability for remaining with the original course of action in the scenario in which this was most desirable, condition 2, was 4.44, while the mean desirability of remaining with this course of action in the scenario with the lowest level of desirability, condition 4, was 3.45. Total mean desirability for remaining with the original course of action across all four conditions was 3.96. Eighty-three percent of respondents suggested they would opt to stay with the original course of action in condition 2, while only fifty-five percent would remain with the original course of action in condition 4; overall across all conditions, the mean percent of the population that would opt to remain with the original course of action was seventy-one. Higher-level analysis revealed very similar levels of influence on desirability and the decision to remain with the original course of action provided both by monetary and time sunk-costs, though this impact is rather minimal with little only an eleven percent difference in the decision to stay when time investments increase form one week to three weeks, and only a five percent increase when the materials for this course of action go from an interlibrary loan to more expensive purchases.

Discussion