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To Quit or Not to Quit: The Economics of Quitting

***This blog post is inspired by the Freakonomics Radio Podcast, Episode 42: The Upside of Quitting and Dr. John A. List’s Optimal Quitting

“Never Give In, Never, Never, Never…” Winston Churchill, October 29 1941. Such is the famous speech of Winston Churchill that gave rise to the popular notion to persevere and persist against all odds. We have always been conditioned by society, popular culture, sports, media and even in schools to never, ever, give up. Never quit because once you do, you lose. And we see it everywhere: stories of sheer perseverance leading to tremendous success is always highlighted in media. But then again, I wonder—for every one or two of these success stories, how many hundreds of those, thousands even, that continued to persevere, actually succeeded…or failed? I guess we’ll never know because those stories don’t always make the headlines.

I am not in any way advocating for quitting and in fact, always err on the side of persevering and working hard. But then again, at what point do we say that certain things are futile, and when do we course correct? In other words, is there such a thing known as Optimal Quitting?

Robert Reich, was the former U.S. secretary of the Department of Labor during the Clinton administration, and he quit at the height of his career. When asked why he decided to leave his very esteemed post, he cited that the amount of time it took him to work long hours in the White House took his precious time away from his kids. This relates to the concept of opportunity cost, which is the “value of the next-best alternative when a decision is made; it’s what’s given up.” When faced with two alternatives, a rational decision maker chooses the one that valued more. In Mr. Reich’s case, time spent with his family is something that he values more.

All our decisions involve opportunity costs, from simple decisions to play video games versus doing homework, food choices, and even where to go to college.

In fact, there is a concept called “Optimal Quitting”, and according to economist and University of Chicago professor, John A List, PhD, it’s an art and very much a very personal one for him. As a young man, Dr. List wanted to be a golfer, researching and practicing his swings while working long and hard on his passion. But he soon realized that, in spite of his talents, being a professional golfer was just not meant for him, leading him to the very difficult decision to quit. Growing up in a midwest culture of resilience and never giving up did not help making this decision, either. But he did quit golf and he turned to his next best passion, his true calling—economics. Even that was not a cakewalk for him, but with perseverance, all the hard work paid off. His realization was that, when he quit when he did, he realized that giving up on his dream as a golfer led him to a career path where he could make a greater contribution to society. Today, Dr. List is an author, professor, advisor to corporations like Uber, Lyft, the Chicago White Sox, and the federal government, and, most importantly, an educator.

John A. List, PhD believes there is such a thing called Optimal Quitting.

So if this is the case, why do some, if not most, choose to “tough it out”? As mentioned, the stigma of quitting is so embedded into our consciousness and carries with it a negative connotation. On top of this is the economic concept of sunk costs, or more specifically for this example, the sunk cost fallacy, which tends to complicate the decision making process. Sunk costs is money (time/effort) that cannot be recovered. The sunk cost fallacy is “the tendency to continue with an endeavor we’ve invested money, effort, time into—even if the current costs outweigh the benefits." The sunk cost fallacy can lead us to make irrational decisions from something as mundane as continuing to watch an movie you’re watching because you’ve already paid for it to something more costly like continuing to invest in a bad investment because you’re in too deep.

Sunk costs can sink us deeper if we continue to stick on a course of action that is not working out.

So when you we know when to quit? Dr. List proposes to keep looking at outside opportunities and how they are changing. If those opportunities look better than the status quo, then most likely quitting should be considered a more viable option. Dr. Steven Levitt, another University of Chicago professor and Freakonomics author goes further to say to “quit fast.” In his experience as an economist, of the hundred of ideas that he has, only two or three end up being actual academic papers. It is the skill to see which ideas are most likely going to fail and deciding to move onto another idea. And I think that makes complete sense…the fewer sunk costs incurred, the easier for one to pivot to another idea.

Pivot…I like that word. Like I said, I have a problem with quitting but pivoting—that I can do! It is after all, one of my favorite moves in basketball, to pivot so I open the opportunity for a good play or get open for a shot. #kevinmchale

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