Some time ago, Martha invested half of everything she owns into starting a new hamster-sitting business. After one year, however, the company is losing big time! That said, Martha decides that she has invested too much to quit now. She sells her car, and then her house in a desperate attempt to save her company. As a result, all evidence suggests that Martha has fallen victim to ____________.
A) Hindsight bias
B) Confirmation bias
C) The conjunction fallacy
D) The sunk cost effect
E) Illusory correlation

Question

Quizplus · Accepted Answer

The fact that Martha continues to invest more money into her failing business, despite clear evidence that it is not profitable, suggests that she has fallen victim to the sunk cost effect, which is the tendency to continue investing resources into a project or decision based on the cumulative resources already invested, regardless of the potential for future loss.

Some Time Ago, Martha Invested Half of Everything She Owns