Question

Rachene bought a magazine subscription, but doesn't really enjoy the articles in the magazine. However, she dutifully reads the entire magazine every month because she already paid for the subscription, and she feels the money will be wasted if she doesn't read the magazine. What psychological factor associated with behavioral economics explains Rachene's behavior?

1. a sunk cost fallacy
2. overvaluing the present relative to the future
3. overconfidence
4. a framing bias

Answer 1

1. a sunk cost fallacy

Step-by-step explanation:

According to sociology and psychology, the sunk cost fallacy refers to a situation in which an individual continues a behavior that he/she is not enjoying anymore because they already invested some resources on it (effort, time or money). In other words, they feel committed to continue with this behavior just because of what they previously invested on it.

In this example, Rachene bought a magazine subscription but she doesn't really enjoy the articles, however she keeps reading the magazine because she paid for the subscription. We can see that she keeps reading the magazine because of the money she invested on it. Thus, this is an example a sunk cost fallacy.