Sunk costs and opportunity costs
Well, it’s a wrap…. almost. We’re shipping boxes of binders, exhibits, books, and hundreds and hundreds of pages of documents tomorrow to the accrediting commission, and now it’s a waiting game. It’s been a grueling year – the first application last spring, and now this past fall, responding to their comments and concerns, we had to significantly revise and re-submit.
We hit some real stumbling blocks, some moments when we were all tempted, seriously tempted, to just throw up our hands and walk away. The project was a total meditation on power and effort, of digging deep and pushing forward. Yet at each obstacle, the question came up, is it worth it?
It’s extremely hard to know, because of the psychology (and economics) of sunk cost and opportunity cost. Sunk cost is an economic term for the money or sweat equity you’ve put into something. And opportunity cost is about the future: for every minute or dollar you spend on something, there’s something else you’re not spending it on. And it’s extremely hard to tell which is the better route. Knowing when to push and when it’s not worth it is extremely hard, psychologically. We get attached all the time, to our detriment, because of sunk costs: relationships, jobs, habits, military campaigns, etc.
With this project we had to consider each time we hit an obstacle (and sometimes it seemed to happen daily), what is the future benefit? Can we imagine it? Can we weigh this level of effort against the future cost? How do we know we’re not just hanging on because of sunk cost?
Working with change of any kind, whether with people or systems, understanding the psychology of investment and loss, is critical. Just as I was cooking on this all, my friend Carol Zahner, sent me this link, The Upside of Quitting.