[00:00:00] Renata: Sunk Cost in economics and finance is a cost that has already been incurred and that it cannot be recovered in the economic decision. Making sunk costs are treated as a bygone and are not taken into consideration when deciding whether to continue investing in a project. I've been thinking about [00:00:21] talking about Sunk Cost theory and Sunk Cost fallacy for many months now, but I've been ruminating and thinking about it without really engaging with the topic in order to do this episode. But recently, a friend of mine explained to me her decision in going to a concert she didn't want go to. And the concert ticket example is a classic example of Sunk Cost fallacy [00:00:48]. So, my friend, after many, many lockdowns in Melbourne felt compelled to buy this ticket, to go to this concert with some friends. And then the very next [00:01:00] day after buying the tickets for herself and for her husband, she started regretting it. It's not the type of music that they like, and to make matters [00:01:10] worse the weather in Melbourne was terrible. It's raining a lot. It still is. And it was raining a lot that day of the concert, but because she had already invested in it already bought the ticket. She decided to go on and attend the concert. Anyway, we do this because we have already made an initial investment and then we feel like we need to get our money's worth.
[00:01:38] Renata: Keep listening to learn how sunk cost fallacy can make you get stuck in your career and learn five strategies you can use to help you make better decisions to achieve your job hunting and career goals.[00:02:00]
[00:02:01] Renata: Hi, I'm Renata Bernarde and this is The Job Hunting Podcast, where I interview experts and professionals and discuss issues that are important for job hunters and those who are working to advance their careers. So make sure that you subscribe and follow and let's dive in. All right. So, what is sunk cost fallacy? Have you ever said to yourself, I've already started this? So I might just as well keep going; if you've said or thought this, chances are you already are having doubts about that enterprise? Am I right? And, likely, you have already fallen on this trap of the Sunk cost valid. The Sunk Cost fallacy describes our tendency to follow through with an endeavor.
[00:02:50] Renata: If we have already invested time, effort, or money into it, whether or not the current costs outweigh [00:03:00] the future benefits. When we continue with the investment, even if it would be rational to give it up, and that's what we call the sunk cost policy. We should ignore sunk costs to prevent us from spending more money and more time on a project that we decided in the past.
[00:03:24] Renata: And this project may not serve our present and future. Our plan has changed. Our minds have changed. The environment has changed and the decision that we made in the past may or may not be the best decision for us anymore. However, we often find ourselves spending more money on a project that doesn't serve us anymore, pursuing it in the hope of recovering the sunk cost, the investment [00:04:00] of time, money, and effort that we have already made into that project.
[00:04:06] Renata: We want to prevent feeling embarrassed by giving it up by understanding the economic theory. I hope you can avoid the sunk cost fallacy by focusing only on your future and how to best live your life without ties to your old self and your past decisions.
[00:04:30] Renata: They may have been good decisions back then. But they may not serve you right anymore. We are all prone to sunk cost fallacy after deciding to pursue something that we were keen to pursue. But how does it apply to our career decisions? When it comes to making career decisions, I have noticed that professionals and executives, clients of mine, commit the sunk cost fallacy when they [00:05:00] continue on a career track for longer than they should.
[00:05:03] Renata: They do a professional development study because they have already started. And not because they're enjoying it or continue to follow a behavior, especially during the job search, because they have already invested time, money, and effort into it. So continuing in a career course because you are already there is the biggest sunk cost fallacy of all, because we have already heard that many of us will change careers over the 30, 40 years that we will be working anyway. So why do we insist on keeping a career track that is not giving us enough money or enough love or happiness enough joy in the work that we're doing?
[00:05:53] Renata: We know that it's okay to change careers. Many times, I have interviewed people on this [00:06:00] very podcast that have changed careers. So, we listen to it, we acknowledge it, but when it comes to us doing it for ourselves, we find it really hard because we have invested so much in developing the career that we currently have, even if it's not serving us.
[00:06:19] Renata: Right. The other issue with career in sunk cost fallacy is when we continue to do a course of study, even though we don't like it, it might be a certification, a long term education track like a master's program, which if you do it, part-time, it can take up to four years. If not more, we have already started it, and then we can't stop because we feel, how could we, we've engaged so much money. We convinced our partners and our family that we needed it. And now how can I give it up? So, here's an example. Okay. [00:07:00] If you have already invested, let's say $5,000 in a professional development program that costs let's say $10,000, then the 5k you already spent, that's called the sunk cost.
[00:07:15] Renata: And it should not be taken into account when deciding whether you want to continue doing that professional development program. What you should take into account before paying the next installment of $5,000 is, Is this program helping my career? Am I learning things that will be useful for my career progression and help me achieve my goals?
[00:07:41] Renata: These are the sort of questions that will then be useful for you in either paying that second installment and continuing with the studies or giving it up. The other way that sunk cost fallacy can really impact negatively your career progression is when you continue [00:08:00] to job search a certain way, even when it's being unsuccessful, that's why people send hundreds of job applications before they even stop to think, what am I doing here?
[00:08:13] Renata: because they feel it's already part of their routine. They've already mastered sending out those job applications, even though the job applications have been unsuccessful. The sunk cost fallacy happens because we fear losing what we have already gained. Even if it's not making us money or bringing us happiness, we have already committed to it.
[00:08:38] Renata: Time and effort and money have already gone into it. So, we feel trapped and want to try our very best to get the results from it. However, that's not really a rational way of making decisions and optimizing your results. So here are five things I would love you to consider when you're making your career [00:09:00] decisions.
[00:09:00] Renata: The first thing I'd like you to consider is this, if we acted in a rational way, only future costs and benefits would be taken into account because regardless of what we have already invested in the past, we will not get it back. Whether or not we follow through on the decision. So, for example, how it affects career decisions.
[00:09:25] Renata: If you have invested your time, energy, and effort into an employer that you dislike, you are not getting that time back. Think about then how will you best invest your time in the future? Will it be staying with that employer? Are there strategies that can make it work from now on. or do you really need to find a new employer to have a better work condition?
[00:09:53] Renata: The second thing I'd like you to consider is this sunk cost fallacy means that we are making [00:10:00] irrational decisions because we are factoring in influences other than the current. What do I mean by that? I mean that we are including the cost already incurred that cannot be recovered, and that's not an alternative.
[00:10:18] Renata: So, staying with an employer, you dislike, shouldn't be an alternative. Falling into that trap leads to suboptimal outcomes for your career, such as staying stuck. One of those could be staying too long with an career. For example, that would be not optimizing your career. Job searching for too long without guidance or results, again, is not serving your career. It's suboptimal results for your career carrying on with a study because you already started and not because of the value it will add to your career ambitions and achieve achieving your goals is again, another [00:11:00] of suboptimal results for your career.
The third thing I'd like you to consider is this don't feel guilty or regretful. [00:11:10] If you decide not to go through with a decision you've made in the past, you don't need to continue to support your past decisions. If you already have evidence suggesting that it isn't the best course of action for you. Accept failure. It's okay to stumble and fall and make mistakes and think something was very important for your career.
[00:11:33] Renata: And then realize it's not, don't feel guilty about it. The fourth thing I'd like you to consider is this, understand that in life we need to reflect review and continuously improve our plans. That's the best way to ensure that our plans are leading to our preferred future and what we want to achieve in life.
[00:11:57] Renata: It's better to you that then to continue on [00:12:00] a course of action because of a decision you've made in the past, and you want to milk it for what it's worth. Sometimes it's not worth it anymore. And number five, focus on current and future costs and benefits instead of past commitments. Write that sentence down in a post-it notes, put it in your vision board, do something to remind you that it's important for you to focus, focus on the future and not on your past.
[00:12:31] Renata: I hope that this idea of sunk cost fallacy and how important it is to allow you to make better smarter, optimal career decisions for you in the future. I hope that it helps you. Please let me know, send me a comment, write to me. If you have my newsletter, I'd love to hear examples of how you think the sunk cost fallacy has kept you back.
[00:12:55] Renata: And if you have had some results and success in [00:13:00] addressing it, and if you have, and if you have, and if you've had some results and success in addressing and correcting it, I'd love to hear from you. If you're not yet subscribed to my newsletter, I will have a link to it in the episode, show notes below. I hope you've enjoyed this episode.
[00:13:18] Renata: Thank you so much for your company. And I look forward to seeing you next time. Bye for now.