Question

Question 3: Harold the Historian belongs to a University suffering from extreme cutbacks. His income is normally 100 per month but the University lowers it to only 5. Harold tells his friends about his bad fortune who, in return, suggest Harold quit his job and work at Starbucks where his monthly income would be 10. Harold responds that he normally would agree to take the job at Starbucks since the salary is higher, but he has already spent thousands of hours of time studying history.
(a) How would an economist comment on Harold’s thinking?

Answer 1

Haold should leave the job of the historian and moveon for the next job because whatever time he has spent studying history will now be considered as sunk cost i.e. the cost that cannot be recovered and thus should not be part of the future decision making in the market.

If he is ready to switch the job he will be making more than what he is making right now as a historian. So, an economist will advice him to not look for the sunk cost and move ahead.