How These 3 Powerful Economic Ideas Nudged My Career In A Better Direction!
Why Switching Costs, Loss Aversion, and the Sunk Cost Fallacy can hold back your career and how to push past them.
I stumbled across a comment someone wrote. They were looking for written examples of people who went all in on a creative endeavor and failed. What were they thinking now? What were they doing? How are they approaching life?
So many case studies, personal essays; anecdotes, social posts focus on wins. Few want to talk about failure or giving up. Society is structured towards winners. We are regaled with stories of unstoppable founders doing whatever it takes to get the deal done. Or the company to IPO; a new product launched to great fanfare. There are always casualties, but they are part of a bigger process.
Sometimes though, you have to stop what you are doing because it is the wrong path. And sometimes, making that choice is more difficult because your life and identity are wrapped in this path. Not many talk about this at all. It’s hard to admit to other people and most of all yourself.
Why is it difficult for people to stop doing work that isn’t good for them? Work which makes them unhappy? Or that they aren’t good at doing but continue doing it anyway? Economics has a few lenses we could use to think about these questions.
The first lens we can use is switching costs. This is any sort of friction you experience when trying to switch from one thing to another. Low switching costs are easy to break through. The higher the switching cost, the harder it becomes to switch. Spotify makes it difficult to take any playlist you have created to another service. The cloud providers fight tooth and nail to provide a lock-in, one AWS succeeded at for many years.
Applying switching costs to your career and skills makes sense too. Spending time and energy learning new skills creates lock-in. Same thing with networking. Staring at a new company or industry makes changing more difficult.
The next lens to look at this is through loss aversion. This is from a famous theory in behavioral economics called prospect theory. An example would be how people stay in unhappy jobs or relationships for too long due to a perceived lost of stability for a period of time. This happens EVEN when there may be better opportunities around. Marketing and advertising use it in their “sale ends soon”, “last chance”, or “this deal ends in however many minutes” ads to a large degree. The purpose is to prompt people towards avoiding a loss of this “GREAT DEAL!”. Although, many of these deals are too good to be true.
The final lens is the sunk cost fallacy. Like switching costs and loss aversion, the sunk cost fallacy has a lot to do with time, effort, and losing money. A sunk cost is what you paid for and can’t recover. An example is buying a ticket to go see a movie and realizing 15 minutes in the movie is garbage. Yet, you choose to stay and finish it.
How would this lens apply to your job? What if you invested years of your life to develop skills for an industry you are unhappy being in? I mean, you wouldn’t want to waste your experience? But this is the fallacy. You aren’t happy. And you aren’t allowing yourself to be better off because you don’t want to waste your time and skills.
For me, music has always remained a deep part of who I am and a crutch making it easy for me to choose what to focus my time on. For better or worse, it has been a part of my identity for decades.
This wasn’t always a problem when music was a hobby. When it became the sole avenue for me to make a living, this is where long term problems took hold. Making music for a living brought me nothing but anxiety. I’d be paranoid the work would disappear everyday.
“What happens when the work runs dry?” I would ask myself. “What am I going to do?”
Turns out, what I should have been asking myself was what I wanted to be doing with my professional time. Music wasn’t cutting it anymore. What I had never considered before taking the job was how much anxiety I’d be taking on making a living through my art.
But stopping seemed felt like failure mode. This was a path I’d wanted my whole life. How could I give up now?
I asked myself was why I let a younger version of me determine how I should be spending my professional time. Being a young teenager and wanting to make music for film and other media seemed like a dream. 30 years later, I needed to reconsider.
Many people will read this and disagree. And I don’t care what they think. If you want to keep doing something, then by all means, keep doing it. After all, how many stories have you ever read where the hero needs to take one more step? Or solve one more puzzle? And finally, defeat one last villain and the prize is theirs. The news is filled with stories of founders and CEO’s doing what it takes and not giving up. Two things: these news stories are filled with confirmation bias and this essay isn’t about these moments. I’m writing about when you know you no longer have that dog in you.
Using me as an example here, I’m dealing with all three of these economic lenses. Spending so much time learning these skills; having my identity wrapped around these skills, yeah, I don’t want to waste and lose all that time. And there is the key word: “lose”. Loss aversion is a bias I’m using as an excuse to hold myself in a particular I don’t want to be in anymore.
When something no longer brings happiness; only anxiety, then it’s time to look somewhere else.
My point being, no matter what walk of life you are in, you are going to want to keep going; pushing ahead; making ground. And this is what you want and should do if you are in a role or on a path making you happy. But if you aren’t happy; if you traversed every path there could be, and you still aren’t happy, no matter how much you continue to try, then stopping what you are doing and moving on is a good thing.
A better way to put it would be, you aren’t giving up, you are re-inventing yourself. So if you feel stuck or are unhappy, think hard about what is keeping you in this place. More than likely one of these three economic frameworks is there. Knowing this gives you the choice of which way to go.