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Enjoying Your Work Richard Brislin |
Chasing sunk costs
can send good money
running after badHaving won awards for both his short stories and essays, Jack Dodson wants to pursue a career as a professional writer. To gain experience, he spends a great deal of time writing articles for a weekly shopping market publication that consumers use to determine the stores with the best money-saving sales.
Jack figures that he makes about $5 an hour for this work. But he also feels that if he writes well, other prestigious newspapers and magazines will offer him lucrative writing assignments. He continues to write for the shopping market weekly, and most of his time is taken up with this writing, his "straight job" as a security guard, and his family life. But offers for better paying writing assignments do not appear.
Jack may be making the error of chasing sunk costs. When people invest resources into products, activities or relationships, they may later engage in behaviors meant to protect these initial investments. The clearest cases of sunk costs involve money, leading to the frequently heard advice, "Don't throw good money after bad!"
Assume that a person owns a 1982 Ford Mustang and has a sentimental attachment to it since it is the car he used when courting his wife. Nine months ago he spend $900 on a brake job. Six months ago, he spent $600 on a new carburetor. Yesterday, his mechanic told him he needed a new transmission, and the costs for parts and labor would be $1,200. Should the car owner tell the mechanic to go ahead? He surely wants to say to himself, "If I invest money for this last repair, I'll have reliable transportation for years to come." But if he approves the new transmission, he may be chasing the sunk costs of the first two repairs. Perhaps he should junk the Mustang and invest the $1,200 in a new car.
Sunk costs apply to relationships. Take the example of a couple that has been dating for five years. The relationship has been rocky, as friends and family members have often observed. But the two people say to each other, "Let's give this relationship six more months to see if we can work things out!" This may be a good idea, but it also may be an example of chasing sunk costs. In this case, the "cost" is six more months to protect the investment of the previous five years.
If people recognize the possibility of sunk costs, they can examine their various invest- ments and think carefully about which ones deserve additional resources and which do not. At times, they will conclude that they have to cut their losses, whether the loss is a poorly performing stock, a career option or a relationship. If they do not cut their losses, they risk entering an endless cycle of throwing today's resources after yesterday's problematic decisions.
The purpose of this column is to increase understanding of
human behavior as it has an impact on the workplace. Given the amount
of time people spend at work, job satisfaction should ideally be high and
it should contribute to general life happiness. Enjoyment can increase as
people learn more about workplace psychology, communication, and group influences.
Richard Brislin is a professor in the College of Business Administration,
University of Hawaii. He can be reached through the
College Relations Office: cro@cba.hawaii.edu