The University of St Andrews

Research@StAndrews:FullText >
Economics & Finance (School of) >
Economics & Finance >
Economics & Finance Theses >

Please use this identifier to cite or link to this item:
This item has been viewed 37 times in the last year. View Statistics

Files in This Item:

File Description SizeFormat
BenjaminKellyPhDThesis.pdf1.13 MBAdobe PDFView/Open
Title: Sunk cost accounting and entrapment in corporate acquisitions and financial markets : an experimental analysis
Authors: Kelly, Benjamin
Supervisors: Bonetti, Shane
Keywords: Experimental economics
Sunk costs
Behavioural finance
Issue Date: Jun-2008
Abstract: Sunk cost accounting refers to the empirical finding that individuals tend to let their decisions be influenced by costs made at an earlier time in such a way that they are more risk seeking than they would be had they not incurred these costs. Such behaviour violates the axioms of economic theory which states individuals should only consider incremental costs and benefits when executing investments. This dissertation is concerned whether the pervasive sunk cost phenomenon extends to corporate acquisitions and financial markets. 122 students from the University of St Andrews participated in three experiments exploring the use of sunk costs in interactive negotiation contexts and financial markets. Experiment I elucidates that subjects value the sunk cost issue higher than other issues in a multi-issue negotiation. Experiment II illustrates that bidders are influenced by the sunk costs of competing bidders in a first price, sealed-bid, common-value auction. In financial markets their exists an analogous concept to sunk cost accounting known as the disposition effect. This explains the tendency of investors to sell “winning” stocks and hold “losing” stocks. Experiment III demonstrates that trading strategies in an experimental equity market are influenced by a pre-trading brokerage cost. Not only are subjects influenced in the direction that reduces the disposition effect but also trading is diminished. Without the brokerage cost there was a significant disposition effect. JEL-Classifications C70, C90, D44, D80, D81, G11
Type: Thesis
Publisher: University of St Andrews
Appears in Collections:Economics & Finance Theses

This item is protected by original copyright

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.


DSpace Software Copyright © 2002-2012  Duraspace - Feedback
For help contact: | Copyright for this page belongs to St Andrews University Library | Terms and Conditions (Cookies)