Cognitive Bias (Decision-making)
Investment Inertia
We tend to resist decisions that revise an existing investment
Overview
We have more aversion to divestment than the same amount of investment.
Types
| Name | Description | Sources |
|---|---|---|
| Endowment Effect | The tendency for people to demand much more to give up an object than they would be willing to pay to acquire it. | [1] |
| Escalation of Commitment | The phenomenon where people justify increased investment in a decision, based on the cumulative prior investment, despite new evidence suggesting that the decision was probably wrong. | [1] |
| Loss Aversion | The perceived disutility of giving up an object is greater than the utility associated with acquiring it.[2] | [1] |
Practical Perspectives
- When making important decisions, identify whether there are sunk costs, committments, or potential losses.
References & Acknowledgements
[1] Wikipedia contributors. "List of cognitive biases." Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 14 Jul. 2020. Web. 23 Jul. 2020. link
[2] (Kahneman, Knetsch & Thaler 1991, p. 193) Daniel Kahneman, together with Amos Tversky, coined the term "loss aversion."
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