According to to Wikipedia, sunk costs are those costs which have already been incurred and cannot be recovered to any significant degree. The example they use is the purchase of a non-refundable movie ticket. If you later decide you don’t want to see the movie an economist would argue that the fact you already paid for the movie ticket should not be part of a rational decision of whether or not you decide to see the movie. This is a condensed version of the explanation, if it doesn’t make sense refer to the Wikipedia entry.
Anyway, there is a reason I’m talking about the economics of sunk cost. I’m somewhat apathetic about going on to my third year of law school and finishing my J.D.Â According to the theory of sunk costs the fact that I’ve spent two years in law school and accumulated $57,000 in debt shouldn’t be part of my decision of whether to finish law school. The accumulated debt and time spent are a major part of my decision process though. If I don’t finish law school it would seem like they were wasted.
Maybe the idea of sunk cost isn’t applicable to this situation. If I were to finish my degree I would have a much higher earning potential. To achieve that earning potential via other means would most likely require a further investment of time and money. Also, if I were later to decide I would like to get my J.D. I would have to start all over again. (Assuming I return more than one year after quitting.)Â Then I would have to pay for my first two years again and have two years of limited earnings. Tuition would most likely be higher as well. It seems to me that the time and money I’ve already invested have to be considered.
Maybe I’m not thinking this through correctly. I would be interested in anyone’s insights or ideas of how I shoud evaluate this decision. If you have any suggestions please leave a comment.