I can’t tell you how many hours I spent laboring over the decision of whether or not to leave the practice of law, but it had to be in the hundreds. And most of that time was wasted.
Don’t get me wrong, there were some important issues I had to work through in order to make an informed, smart decision. For example, I needed to understand whether I could support our family and be sure my new career choice would provide more of what I was missing as a lawyer. But those factors consumed far less of my time and mental energy than other wasteful musings, namely:
Was it wise to walk away from the law degree I worked so hard for?
Should I leave the prestigious law firm I was employed by?
Was it a mistake to toss overboard the goodwill I had built up as a practicing lawyer?
Ultimately, I decided that making the leap was worth it. And in retrospect, I came to realize how unproductive it was to labor over so many things that didn’t matter. I fell victim to the “sunk cost fallacy.”
The sunk cost fallacy is a common cause of poor decision-making, including decisions about work and careers, but the fallacy extends far beyond those domains. A sunk cost is any past cost of money, time, or effort that cannot be recovered. The investment has been made and there is no getting it back.
This fallacy arises in many different ways. Ever start a book, get bored halfway through, but plow on to the end nonetheless? The two hours you spent reading shouldn’t influence your decision about investing even more time in something that’s not worthwhile, but it often does. The more energy or resources we devote to something, the harder it is to abandon it.
If it’s difficult to put down a bad book, you can see why sunk costs influenced my decision to stick with the practice of law despite wanting, deep down, to pursue something else. And I’m sure you can relate, as almost everyone has struggled to make a change due to an aversion to suffering a perceived loss of a past investment of time or resources.
Why We Struggle with Sunk Costs
One of the main reasons we fall victim to the sunk cost fallacy is that the status quo, no matter how dissatisfactory, is often the path of least resistance—it involves no effort, risk, or transformation.
Another reason is our tendency toward short-term thinking. While we all prefer big rewards over smaller ones, most of us have an even stronger preference for present rewards over future ones—even when the future ones are much more valuable.
This phenomenon, a type of cognitive bias, is called “hyperbolic discounting.” It stands for the proposition that the further away a reward is in the future, the less of an immediate motivation there is to put the work in to realize it. Therefore, the tendency to value short-term rewards can lead us to double-down on past investments because the promise of bigger long-term rewards seem less concrete.
In short, we focus on sunk costs because it feels risky not to. But given the fact that sunk costs can’t, by definition, be recovered, doesn’t that mean we need to rethink risk? After all, making future decisions based on past sunk costs guarantees we get mired in our current circumstances. And if those circumstances don’t align with our future objectives, stagnation is a risky proposition.
Knowing when it’s smart to stick and when it’s time to quit is not an easy decision. Persistence is a worthy attribute, but blindly persisting in pursuit of the wrong objectives leads to nothing but discontent.
As Warren Buffet once said, “The most important thing to do if you find yourself in a hole is to stop digging.”
Do you want something else, something new, something different? Your gut instinct might be urging you to move in a different direction, but sunk costs may be keeping you anchored to the present.
Moving forward requires us to move past sunk costs. Here’s how Seth Godin puts it:
“Everything you own, all the clothing in your closet, your academic achievements and beyond is simply a gift. It is a gift that your past self is giving to your present self, and it’s up to you to decide whether you want that gift today. It is as simple as that—you owe your past self nothing, other than the consideration of whether these gifts are helpful in the here and now.”
Sunk costs are a gift. You can part with them if you want. And if you want change, then say farewell.
Jay Harrington is an author and lawyer-turned-entrepreneur who runs a northern Michigan-inspired lifestyle brand called Life and Whim. He lives with his wife and three young girls in a small town and writes about living a purposeful, outdoor-oriented life.