Why I Have Decided to Throw in the Towel

by Mark on April 1, 2010 · 4 comments

No, this isn’t just some April Fool’s joke. I am quitting blogging, and I have decided not to bother with the 90-Day Challenge. You are probably wondering what brought on this sudden turn of events. It’s not a decision that I made lightly. It’s actually something that I have been carefully considering for the last few weeks.

I have tried to think this through as rationally as possible without being unduly influenced with the natural biases that can distort decision making. The study of human behavior in recent decades has shown that humans make systematic errors in decision making, and I wanted to be sure that I avoided making such an error. I actually ended up turning to a few economics concepts to help me make my decision. A description of these economics concepts will help to explain the thinking process that I used before coming to a final decision.

Sunk Costs

A sunk cost is a cost that has already been incurred and cannot be recovered. Because there is nothing we can do about them, sunk costs are completely irrelevant for decision making. Our natural instinct is to think that they matter, and this unduly influences us. One common example is in investing. Let’s say that you bought 100 shares of Microsoft at about $45 per share, or a total value of $4,500. Now they are trading at roughly $30 per share, or a total value of $3,000. This is a loss of $1,500, or about 33%. Because we naturally hate to take losses, especially large losses, the result is an irrational increased tendency towards holding the stock.

The problem is that we irrationally compare the $3,000 current value against the $4,500 cost basis (the cost of the purchase). The cost basis is a sunk cost and is irrelevant. It makes no difference. Let’s say I bought 100 shares of Microsoft at the current price for a total cost basis of $3,000. The value of our Microsoft holdings will rise or fall at the same rate. The fact that we have different cost bases doesn’t change this fact. This is why we both need to ignore what we paid for the stock and instead consider what will happen to the stock from this point forward. That is all that is relevant.

What does this have to do with my decision? I have made a large investment of time and effort writing for this blog. It has been a lot of work during a time that I have been working overtime during my day job. It would be natural to think that I should continue because it would be a tremendous waste to quit. The problem is that there is nothing I can do about all the work that I have put in. What is done is done. I have to compare the future benefits against the future costs. This leads to the second economic concept that I want to talk about.

Marginal Costs versus Marginal Benefits

The “marginal” concept is a very important one in economics. “Marginal” means incremental or additional. The marginal cost of an alternative is the incremental or additional cost of choosing that alternative. The marginal benefit of an alternative is the incremental or additional benefit of choosing that alternative. It doesn’t matter how much this website has already cost me in terms of dollars or effort. It doesn’t matter how much benefit I have already received in the past from this website. It only matters that the marginal benefits outweigh the marginal costs. That is, the benefits of continuing to blog from this point forward must be greater than the costs of continuing to blog.

This was a huge factor in my decision. Projecting into the future, I honestly see myself having to work extremely hard with a strong likelihood of not receiving adequate benefits in return. It obviously wouldn’t make any sense to continue under such a circumstance. I have better things to do with my time. This brings me to the third economic concept that impacted my decision.

Opportunity Cost

Opportunity cost is the value of the next-best alternative. Let’s say that I decide to work on my blog this coming Saturday morning. Otherwise, I would go golfing. The value that I am forgoing by not going golfing is the opportunity cost. I have sacrificed my enjoyment of golf for the sake of blogging, so this is a cost of blogging. In other words, you can’t have your cake and eat it too. Every time you choose a particular alternative, you are sacrificing the value of other alternatives. If I absolutely love golf, then I am making a big sacrifice in order to blog. The opportunity cost is high.

This is why I have decided to stop blogging and why I am not going to do the 90-Day Challenge. The opportunity cost is just too high. I would have to sacrifice too much. I would sacrifice time that I could be golfing, reading, watching TV, hanging out with friends, and all sorts of things. This is just too big a sacrifice to make.

So where do I go from here?

At the beginning of this post, I said “this isn’t just some April Fool’s joke,” and I wasn’t lying. It isn’t just some April Fool’s joke. My decision to quit is a joke, but I also included a lesson in applying economics concepts to decision making. Did I make an April Fool out of you? :-)

The concepts that I wrote about in this post are ones that I do apply to my thought process. Although it is difficult to estimate, I actually think the future benefits of blogging and doing the 90-Day Challenge will far outweigh the costs. I have no intention of quitting, but it will be a decision that I will need to reassess regularly. I am actually just as excited as ever for the direction I’m headed.

As the Terminator said, “I’ll be back.”


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