Comments on: The Economics of Sunk Costs http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/ Extreme Frugality - How to Live Well on Very Little Thu, 17 May 2012 01:10:15 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Juan Millon http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-138 Juan Millon Thu, 12 Apr 2007 19:25:31 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-138 Quitting anything that you're already knee deep in has infinite, but non-discrete costs. Stick to your guns!! Juan Quitting anything that you’re already knee deep in has infinite, but non-discrete costs. Stick to your guns!!

Juan

]]> By: plonkee http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-137 plonkee Tue, 10 Apr 2007 12:17:16 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-137 Its true that you shouldn't include the fact that you have already spent x amount on your degree in deciding whether to continue or not. But you should be comparing your true financial position if you don't finish it, with that if you do. And that includes student loans, if you have them. For example, suppose you have $40,000 in debt now and can get a job that pays $40,000 per year if you don't finish your JD, compared to $60,000 in debt in a years time and a job that pays $50,000 per year. Financially speaking, it would make more sense not to finish. Its true that you shouldn’t include the fact that you have already spent x amount on your degree in deciding whether to continue or not.

But you should be comparing your true financial position if you don’t finish it, with that if you do. And that includes student loans, if you have them.

For example, suppose you have $40,000 in debt now and can get a job that pays $40,000 per year if you don’t finish your JD, compared to $60,000 in debt in a years time and a job that pays $50,000 per year. Financially speaking, it would make more sense not to finish.

]]> By: shadox http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-136 shadox Tue, 10 Apr 2007 06:55:28 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-136 John Hunter has it exactly right. Sunk cost simply means that the money you have already spent and cannot recoup should not be used in the financial cost-benefit analysis of deciding whether or not a third year of law school makes sense. However, as you describe in the post, there are other factors that have nothing to do with the amount of debt you have accumulated or the tuition you already paid that are relevant in that decision - such as your increased earnings power after the JD, as well as the cost of obtaining alternative professional training. DO NOT LOSE HEART! I am a recovered lawyer. After getting my law degree and practicing law for three years in a law firm, I left law in the distant past and found new challenges in corporate high-tech marketing. Your JD will come-in handy in whatever you decide to do. Stick it out and it will pay off. John Hunter has it exactly right. Sunk cost simply means that the money you have already spent and cannot recoup should not be used in the financial cost-benefit analysis of deciding whether or not a third year of law school makes sense.

However, as you describe in the post, there are other factors that have nothing to do with the amount of debt you have accumulated or the tuition you already paid that are relevant in that decision – such as your increased earnings power after the JD, as well as the cost of obtaining alternative professional training.

DO NOT LOSE HEART! I am a recovered lawyer. After getting my law degree and practicing law for three years in a law firm, I left law in the distant past and found new challenges in corporate high-tech marketing. Your JD will come-in handy in whatever you decide to do. Stick it out and it will pay off.

]]> By: Super Saver http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-134 Super Saver Mon, 09 Apr 2007 23:26:30 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-134 TFM, I will comment with a couple of questions: What will you do instead of finishing your J.D.? Is the alternative a "better return" than your current path? If yes, then sunk costs should be ignored. No need to answer me. Just wanted to provide some helpful elements to consider :-) Good luck on your decision. TFM,

I will comment with a couple of questions:

What will you do instead of finishing your J.D.?

Is the alternative a “better return” than your current path? If yes, then sunk costs should be ignored.

No need to answer me. Just wanted to provide some helpful elements to consider :-)

Good luck on your decision.

]]> By: EA http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-133 EA Mon, 09 Apr 2007 21:26:19 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-133 Another thing to consider is whether you're ever going to want to finish the degree. It's probably cheaper to finish now (including both costs and time) than to re-start later. Another thing to consider is whether you’re ever going to want to finish the degree. It’s probably cheaper to finish now (including both costs and time) than to re-start later.

]]> By: Tight Fisted Miser http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-130 Tight Fisted Miser Mon, 09 Apr 2007 17:20:09 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-130 Thanks for the comments. I believe I better understand the concept now. I most likely will complete my J.D., although I might use it in an alternative career. Thanks for the comments. I believe I better understand the concept now. I most likely will complete my J.D., although I might use it in an alternative career.

]]> By: John Hunter http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-129 John Hunter Mon, 09 Apr 2007 17:05:07 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-129 Sunk cost just means that you don't include them in the calculation in determining what to do now. If going to school for one more year costs you $25,000 and it is worth $40,000 to you then it makes sense to go. The previous costs are ignored. Deciding to go for the next year does not effect how much money has already been spent. The decision for this year only effects what you will spend next. The accumulated debt can be a factor (sunk costs does not rule that out). Factoring in not that you spent that much in the past but that today you have debt that must be paid off. If you have that debt today it might be that an option to earn less is not as practical given your accumulated debt (the situation today) and therefor providing incentive to finish so that you can earn more and pay off the debt. Sunk cost just means that you don’t include them in the calculation in determining what to do now. If going to school for one more year costs you $25,000 and it is worth $40,000 to you then it makes sense to go. The previous costs are ignored. Deciding to go for the next year does not effect how much money has already been spent. The decision for this year only effects what you will spend next.

The accumulated debt can be a factor (sunk costs does not rule that out). Factoring in not that you spent that much in the past but that today you have debt that must be paid off. If you have that debt today it might be that an option to earn less is not as practical given your accumulated debt (the situation today) and therefor providing incentive to finish so that you can earn more and pay off the debt.

]]> By: Tight Fisted Miser » Carnival of Personal Finance #95 Is Up http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-128 Tight Fisted Miser » Carnival of Personal Finance #95 Is Up Mon, 09 Apr 2007 16:38:07 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-128 [...] The 95th Carnival of Personal Finance is up at Accumulating Money. It includes my post “The Economics of Sunk Costs“. There are too many posts for me to read them all but here are a few that caught my eye. [...] [...] The 95th Carnival of Personal Finance is up at Accumulating Money. It includes my post “The Economics of Sunk Costs“. There are too many posts for me to read them all but here are a few that caught my eye. [...]

]]> By: KMull http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-127 KMull Mon, 09 Apr 2007 14:39:28 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-127 Naturally, I would recommend finishing the J.D. It depends on why you are apathetic. Do you hate law now? What do you want to do with your life? My advice: finish the JD, get a solid job in your field, and pay off the debt. Then feel free to do whatever you want. The missed value of not finishing 2/3rds of the way through seems odd. Will you be able to achieve the same income if you walk away today? Naturally, I would recommend finishing the J.D. It depends on why you are apathetic. Do you hate law now? What do you want to do with your life?

My advice: finish the JD, get a solid job in your field, and pay off the debt. Then feel free to do whatever you want. The missed value of not finishing 2/3rds of the way through seems odd. Will you be able to achieve the same income if you walk away today?

]]> By: Accumulating Money » Carnival of Personal Finance #95 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/comment-page-1/#comment-123 Accumulating Money » Carnival of Personal Finance #95 Mon, 09 Apr 2007 07:43:22 +0000 http://tightfistedmiser.com/2007/04/04/the-economics-of-sunk-costs/#comment-123 [...] The Economics of Sunk Costs [...] [...] The Economics of Sunk Costs [...]

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