Sunk Costs in Careers
by Adam Casey on October 31st, 2012
In my last post we looked at sunk costs. We saw that having paid for something distorts how you think about it later on.
This is a very common experience in career decisions. You might be in a degree course you don’t want to be on, or climbing the ladder in a company you aren’t sure about, or find out that the dream job you’ve spent years working for isn’t as good as expected. It is only by forgetting these sunk costs that you can make the right career decisions and have as much impact as you can.
If you find yourself in this situation what can you do?
Rejecting sunk costs
On paper Mark was faced with an tricky decision: what would do more good, doing philosophy, or training as a lawyer and doing earning to give? It’s a tricky decision, but it’s at least possible to think through the different ways those careers will do good, and to estimate how much good they are likely to do.
In practice that decision was much harder. Those years of work getting his degree were a huge cost. To abandon that work (letting that work be in vain) would be painful for most people, which would make it hard to reliably make the right decision. If you’ve already worked to get something, you’ll think it was a better choice than if you hadn’t. 1
How could Mark have overcome this bias and make a rational decision about his future career?
Fighting the sunk cost bias
Correcting this bias is hard, but it can be done. If you follow this simple 3 step process the evidence suggests you will find it easier to make rational decisions.
1) Present: Assess your current situation without talking about the past.
Talk through what you have now, all the knowledge, all the qualifications, all the things that give you access to something else. But don’t think about how you got them, pretend that process was just an accident.
2) Future: Talk about the future costs/benefits of your options.
Once you know where you are talk about where you can go. Make a list of the costs from now on of each option, and a list of all the benefits from now on of each option.2
3) Justify: Explain these future cost/benefits to someone else and justify your decision to them
Get someone else, like an 80,000 hours advisor, to talk through the decision with you. If you understand sunk costs then you are likely to find it hard to justify biased decisions to someone else.3
So for Mark’s decision the process could look something like this:
- Step 1: Mark can imagine that he woke up one morning to find that some martians had hacked the university records to award him a fake degree and then performed brain surgery to give him lots of extra philosophy knowledge.
- Step 2: Mark lists how much extra work he would have to do to finish his PhD and compares it to the work he would have to do to train as a lawyer. He then lists how much good he could do as a philosopher and how much good he could do as a lawyer.
- Step 3: It is important for Mark to talk over these estimates with someone else. So he talks to a friend about each step of reasoning.
In the end Mark concluded he would do more good as a lawyer.
But the story doesn’t end there.
Some years after starting law school Mark reassessed what was lacking in the field of effective altruism. He decided that the building an effective recruitment network was more urgent than just raising money. So he was faced with yet another sunk cost decision. Could he abandon his law school training and start all over a third time?
The sunk cost bias is powerful, but it can be overcome. Mark went on to found THINK in August 2012.
Question to think about:
What have you invested a lot of time/money into? Are you sure that carrying on with it is the right choice? Give an example of where you’ve overcome the sunk cost bias in comments.
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Looking at estimates of future costs and benefits is effective Tan & Yates 1985↩
While other people aren’t automatically better than you at avoiding the sunk cost bias, if you understand the sunk cost bias it is helpful to make your decision making accountable to other people. Simonson & Nye 1992; Fenema & Perkins 2008↩