Question

Sam sees a brand new car that he would love to buy, but then he starts thinking about how much money he has already put into the car he currently owns. He just paid $700 to have the radiator in his car fixeD. Ultimately, he decides to not buy the new car. What principle best explains Sam’s decision?

Select one:
a. mental accounting
b. the sunk cost fallacy Correct
c. the endowment effect
d. framing effects

Answer 1

b.

Step-by-step explanation:

Based on the information provided within the question it seems that the principle that best explains Sam's decision is the sunk cost fallacy. This term refers to a cost that cost that has been incurred but cannot be recovered or changed. Usually these costs were known before being incurred and do not affect future costs for the individual or business. Which is basically what Sam is mentioning when talking about all the money that he put into his already owned car, which influenced his decision on whether or not to buy a new car.