Anchoring Effect and Sunk Cost Fallacy: A Literature Review on Cognitive Biases in Decision-making

Cognitive shortcuts and psychological variables frequently impact decision-making processes in addition to logical analysis. Among them, cognitive biases have garnered more scholarly attention because of their widespread influence in management, economics, and daily life. This literature review examines two cognitive biases, anchoring effect and sunk cost fallacy, which shapes decision-making in various areas. It utilizes existing studies to investigate the contributing factors and real-life applications of the two biases, while clarifying the limitations of the studies explored. Findings indicate the strong influence anchoring effect has on price estimations in the real-estate market and consumer price judgment. Similarly, sunk cost is evident to considerably shape the playing time distribution decisions of coaches and the persistence bidding in penny auctions. To conclude, both cognitive biases have considerable impact on the decision-making across diverse contexts, which implies the importance of further research exploring the impact of these cognitive biases across more disciplines. Moreover, a more rigorous experiment design, such as incorporating more controlled variables, is needed for the future research.