Sunk Cost Fallacy in Driving the World's Costliest Cars

Does the sunk cost fallacy affect decision-makers in high-stakes situations? We develop a behavioral model of usage of a durable good with mental accounting for sunk costs. It predicts that usage increases in the sunk cost, and attenuates with time at a rate that increases in the sunk cost. The model nests conventionally rational behavior as a special case.We take the model to a panel of 7,398 cars between 2001-2011 in Singapore. During that...