In a world where people bet reputation and money on prediction markets, would people who lost a lot on a belief they were particularly passionate about (e.g. political, identity-ish) actually become more convinced of that belief due to the sunk costs fallacy? My co-blogger won’t let me make any science bets until I have some evidence or good arguments either way.
In response to some answers:
People would know and understand the sunk cost fallacy. However, this does not always stop people.
After spending two days studying it in my high school economics class, the teacher had the students enter a sunk cost auction (in which you have to pay whatever you bid, even if you don’t win).
Even after having done a homework assignment on sunk costs and discussed them at length, many students found themselves betting on sunk costs. In the end, one guy payed $20 for a can of coke.
I believe the point of prediction markets is primarily to create a more rational world, and to help people make informed decisions (e.g. politicians) rather than act blindly on irrational pet beliefs. Feel free to correct me if I’m wrong.
What this story tells me, more than anything else, is that people fail to internalize sunk cost fallacies.
This seems to be common of people who learn about biases. Knowing about the planning fallacy doesn’t seem to make a real difference. In Thinking: Fast and Slow Daniel Kahneman tells the story about students learning about the bystander effect, but failing to actually update their thinking.
This tells me that we need a new, better way of teaching people about biases so that the knowledge actually influences their mind and they internalize it.
What does this say about prediction markets? I have no idea.