Sunk Cost Fallacy in the Indian Education and Job Market: A Behavioural Economics Analysis of Path Inertia

This paper examines the sunk cost fallacy: the tendency to allow past, irrecoverable investments to drive forward-looking decisions, and proposes that in collectivist, credential-intensive contexts, sunk cost sensitivity is driven by perceived social irreversibility rather than absolute investment magnitude, a modification of the Arkes-Blumer (1985) canonical model. Drawing on a primary quantitative survey of 146 respondents across three occupational categories (Students, Working Professionals, and Competitive Exam Aspirants) and twelve fields of study and practice, collected during March-April 2026, the study finds that 55.8% of respondents cite a sunk cost factor as their primary driver of path continuation, while 64.4% exhibit some form of sunk cost behaviour in a controlled hypothetical scenario. Cross-tabulation analysis reveals three distinct psychological profiles: Working Professionals (financially entrenched), Competitive Exam Aspirants (cognitively paralysed), and Students (most willing to exit but most socially constrained).

The paper proposes a four-layer compound entrapment model: cognitive, social, structural, and institutional, and a modification of the Arkes-Blumer (1985) canonical model: in collectivist, credential-intensive contexts, sunk cost sensitivity is a function of perceived social irreversibility rather than absolute investment magnitude. Eight policy recommendations across four intervention layers are derived, including mandatory prospective audit counselling, family-inclusive career guidance, skills-based hiring mandates, and institutional reform of the UPSC examination age framework.