Think fast: You just paid $9 to get into a movie, and only 10 minutes in you can tell it’s utter rubbish. What do you do? Do you stay and watch it, or leave and do something else?
If you’re like most people, you would sit through the movie. The reasoning goes something like this: “I paid $9 for this movie, and if I leave before the movie is over, then I lost those $9. Therefore, I should stay for the entire movie.” However, an economist would say that you should ignore the $9 when deciding whether or not to leave. An economist would regard the $9 as a sunk cost, which cannot be recovered whether you stay or go (assuming that the theater does not give refunds), so it should not be relevant to the decision. The only things that you should consider in such a case are 1) how much you would enjoy the rest of the movie, and 2) how much you would enjoy the next best thing that you could do if you left early?
I can think of many instances where people behave exactly as shown in this example. My friend went to law school, began working at a large firm, and then realized he absolutely hated it. Yet he stayed on, working 60+ hours a week, because he feels like he has to make his life “worth the time and money law school cost.” I have myself eaten a meal at a restaurant even though I wasn’t enjoying it, thinking that I did not want to waste my money.
I saw immediately that this concept could shed new light on my career. I started thinking about why I sometimes feel conflicted about the type of opportunities that I pursue. Specifically, I started applying this economic theory to my job search. Are there any past “mistakes” that I am still trying to correct? Are there any investments I’ve made in the past that I feel I’ve failed to take advantage of? Am I letting those past deeds and experiences dictate what I do now in a vain effort to recover whatever they have cost me?
I don’t think I have any personal examples that are as clear cut as the ones I’ve mentioned here, but I do hang on to old ideas and strive after them, and I often experience the sense that I need to rectify mistakes. Which got me to wondering — were they really mistakes, or just things that didn’t turned out as I’d hoped or expected?
The thought of ignoring the past while deciding what to pursue from this point on is liberating. It allows you to look at current options and ask, simply, which one would bring the most future benefit.