Tuesday, July 24, 2012

Sunk costs

Suppose you’ve absorbed all the bad news about the legal job market, and you have a queasy feeling.  You’re worried that you won’t find a job as a lawyer, that you won’t like the job if you do find one, and/or that you won’t be able to pay off your loans even with a job you like.  But you’ve already invested one or two years in law school.  Should you walk away at this point?  Or does it make sense to finish the degree?

The answer, as any tiresome law professor would say, is “it depends.”  First the bad news:  The time and money that you’ve invested so far are “sunk costs.”  No matter what you do, you can’t regain those hours or dollars.  If you are a law student, you have already spent X dollars and Y hours working towards your degree.  Nothing will change that investment:  Whether you finish law school or choose a different path, those dollars and hours are gone. 

No one likes to think about “goneness,” so your brain will try to give those spent hours/dollars meaning.  This gives rise to what economists call the “sunk cost fallacy.”  Confronted with costs that can’t be recovered, people try to give the lost costs meaning—even if that leads to irrational actions.  The classic example is a person who purchases a movie ticket and then hears from a reliable friend that the movie is revoltingly awful.  At this point, the purchaser doesn’t want to see the movie; he trusts his friend that the ninety minutes will be agonizing.  On the other hand, the purchaser doesn’t want to acknowledge to himself that he wasted eight dollars on the movie ticket.  Some people will go to the movie as a way of giving value to the purchased ticket—even though, paradoxically, they will end up losing both the price of the ticket and the ninety minutes they might have spent doing something more pleasant.  Sunk costs create excruciating decisions, especially when the costs are much larger than eight dollars.

Now the slightly better news:  The time and money already devoted to law school are sunk costs, but not necessarily dead weights.  You should consider these investments when deciding whether to continue law school, but not as sunk costs that have to be validated.  Don’t think about how much you’ve invested so far.  Instead, think about what—if anything—you’ve gained.  This is not a Pollyanna exercise; it’s a way of helping you avoid the sunk cost fallacy.  The question you have to ask is:  Given my talents, experience, and potential (all as measured today), together with the particular options open to me (again, as you know them today), what is the best path forward?  Will another year or two of law school yield benefits that outweigh the costs?  Or would a leave of absence (perhaps leading to a permanent departure) produce a better outcome?  To answer those questions, you have to fully assess your current position—including whatever you’ve gained from time in law school. 

If you’ve finished one or two years of law school, you’re a different person than you were as a 0L. You know a little more about law practice, and a lot more about the challenges of the job market.  You’ve gained the basic skill of thinking like a lawyer, and maybe some more specialized skills (knowledge of a particular doctrinal area, experience mediating, etc).  You know about your own performance in law school—what you loved, what you hated, where you excelled, and where you had trouble.  You can also estimate what your performance, combined with other experiences and attributes, might yield for you on the job market. 

I'm not suggesting that those gains were worth the price; given the high price of law school, both financially and personally, there's a good chance the gains were not worth their cost.  But that's not the relevant question now; regrets will lead you straight to the sunk cost fallacy.  Instead, you have to assess your current position, including any gains you've realized while in law school, without thinking about the amounts you've already paid.  In my next post, I'll suggest how to apply your assessment of your current position, as well as the other information you've gathered, to think through next steps.

Update: [LP] Previous posts by DJM on this topic are here and here.


  1. Thank you for posting this, as it has been on my mind lately, and I am sure others are wondering if they should stay or leave.

  2. @djm, I emailed you this weekend asking for this post, and I think you did an excellent job.

  3. Another issue related to sunk costs is admitting to yourself that you made a mistake in attending law school. I believe it to be as powerful a realization as that which an alcoholic or compulsive gambler must go through on their road to recovery. I think that is the highest hurdle one can face. It is no surprise that many, perhaps myself included, just soldier on because, god damn it all, this is what we set out to do.

    I'm a year out of law school now. My perspective has changed. To be honest, I am glad I got that JD & that I passed the bar exam. But "glad" doesn't put food on the table. "Glad" is kind of silly. But, glad is what I have.

  4. The problem is that the JD does not put food on the table for most people, even many experienced grads from the T14 law schools. I surely never would have started my T6, and definitely would not have finished had I read this blog. I am so sorry I got my degree from a T6. Biggest mistake of my life. The degree put food on the table when I was young enough to work for Biglaw, but is useless now.

  5. Just to clarify, I can get a job with my T6 degree but it does not pay the $160,000 starting salary my school advertises for first years in private practice. I have not even been offered two thirds of that amount. Such a scam. A police officer or teacher makes almost double what I do, including benefits. T6 is such a scam because the schools are graduating several times too many lawyers for too few jobs.

  6. DJM

    Great post. I think the other thing young, bright people have to learn how to do is forgive themselves for things not working out. Sometimes, they just don't. If things don't work out well in the first year, okay---say: "I tried that and now I'm moving on". You don't have to have your life completely worked out by the time you are 25---in fact it is one of the more unrealistic expectations we as a society place on our young--- that and expecting them to pay back 100k to 200k in debt. If your first or second year doesn't work out, move on, because, I promise you--- eventually, something will as long as you have the courage to cut your losses.

  7. To the list of gains, I would add a couple things:

    - You know basic contract law. That knowledge is useful in almost any walk of life.

    - You know how to "find the law," i.e., how to do legal research, how to make sense out of opinions and statutes, etc. Again, a skill that is useful in almost any walk of life.

    Of course, as DJM pointed out, these gains aren't worth anything even close to what law schools charge. But they are things you can take away with you and put to good use.

  8. This is a great post. The tragedy is that students - - even the ones that recognize that their first year is a sunk cost and address their subsequent years in terms of what they will gain - - have few other options.

    Thus, their real calculus is more along the lines of, "I know that continuing law school is a really risky proposition, likely a horrendous mistake, but I really dont know what else to do and I cannot get a job anyplace else, so I might as well keep at it."

  9. This post, in a word, is kindness.

    Looking out for the best interests of students.

    Unlike much of law school administration today.

    Thank you, DJM.

  10. I think there is a pretty simple way to determine whether to go to law school and whether to stay in law school. A person contemplating going to or staying in law school should ask themselves whether or not there is a specific job that they would like to have and are very certain they could get if they had a law degree, but cannot get without a law degree. Then they should ask whether the debt and opportunity cost make getting a law degree worth getting the eventual job.

    If you are thinking about going to or staying in law school with no particular idea in mind of exactly what job you want in the end, you probably shouldn't go. Law school (especially at today's tuition rates) just isn't the place to go hoping to find yourself, or hoping to discover what career you want to have someday.

    If you are in law school and have no real sense of what the endgame is, you might be better of accepting the sunk costs and getting out before you rack up another year or two worth of debt and lost opportunity.

  11. If you leave law school, and take just anything you can get temporarily and then look really hard, you may get a job you like. Can take several months. You don't know till you try.

  12. 1. Being a lawyer and spending your life solving other people's problems for no money sucks. However, at least knowing how to think like a lawyer does help you immensely in your own life avoiding and solving your own problems.

    2. The first year of law school really does expand your analytical reasoning skills. The last two years are not that important.

  13. TMoney writes, "...simple way to determine whether to go to law school and whether to stay in law school... ask whether or not there is a specific job that they would like to have and are very certain they could get if they had a law degree, but cannot get without a law degree. Then they should ask whether the debt and opportunity cost make getting a law degree worth getting the eventual job. "

    Sounds simple indeed. And accurate, except for one thing. I don't care how many days a 0L shadows a PD, a firm attorney, an in-house attorney, etc, that 0L will never really know whether they will like any particular law job.

    Not with any useful degree of certainty, that is.

    For that matter, neither will the chemical engineer ever really know, beforehand, whether s/he will find a job s/he really likes.

    C'est la vie. Oh well.

  14. Some fun anagrams for "sunk cost":
    - suck snot.
    - stuck, Son.
    - cuss knot.
    - sucks ton.

    And for "sunk cost fallacy" (I avoided those with the "F" word):
    - SOS funky catcall.
    - Cons Suck Fatally.
    - Faculty Slacks On.

  15. I have a request for both DJM and LawProf: can either of you write a similar post to this one, but for those of us who have already graduated and passed the bar and are struggling in this economy? What can we do? I don't want to think all is lost.

    I don't necessarily mean what can I do in the legal field - my heart has already left the legal field and only by a weird quirk of fate do I find myself still physically in it. But my enthusiasm is permanently damaged. What can those of us who find we can no longer stay in the law (either because we can no longer afford to, can't find a job in it, just don't have the enthusiasm and energy for it knowing that law schools took us for every dime, etc.)do?

    Any guidance would be greatly appreciated. We are so lost...

  16. This is a great post, directed at the heart of why 2Ls don't drop out when clearly it is in their best interest.

    I think another aspect is the "frozen in fear" reaction to a big mistake. You may know at the beginning of 2L that you've made a huge mistake, but are too focused on grieving for the life you won't have and frozen in fear of what comes next to pull the plane out of a death spiral. By the time you can make a rational decision, you're another 60K in debt.

    DMJ, your compassionate words are exactly what a 2L needs to make a rational decision.

  17. Great post!

    One request - include at least one link (better two) either within the text of the post itself or at the top/bottom to the earlier blog posts "Should You Stay?" and "Some Rules for Risky Times".

    For first-time or casual visitors to the blog, direct links to those posts can give them some hard data and numerical considerations that directly complement the more "psychological" considerations in this post.

    As someone who went to law school with almost no intent to practice the law, I think the biggest benefit of law school is actually one gained in the first year: meeting future lawyers.

    I managed to make it through three decades on this planet without ever knowing a lawyer. As an urban person who's never bought a house (nor committed a serious crime), I've never needed a lawyer. When push comes to shove, I would've been stuck with flipping through the Yellow Pages, hoping I didn't pick a total shyster.

    Now, I've got a dozen friends and a couple dozen-odd acquaintances that I can get in contact with. My facebook feed alone has become a legal resource. When I do end up needing a lawyer for something, I can comfortably hire a friend (or get a really solid referral from one), and can be sure the work will be done reasonably well, because I know my friend is a sharp person.

    You could build this social network in the first year, no more law school needed.

    Is that worth $45,000 in tuition?

    Of course not.

    But it's an asset that a lower-middle-class kid from the Jersey burbs never would've gotten otherwise.

    - You know how to "find the law," i.e., how to do legal research, how to make sense out of opinions and statutes, etc. Again, a skill that is useful in almost any walk of life.

    This is also huge, and basically learned in 1L. Those of us with a legal background often forget how opaque and intimidating anything legal is to outsiders. Learning the basics of how the law is structured, and how to find what you need could be tremendously useful.

    Again, though:

    Is this worth $45,000 in tuition the first year?

    Almost certainly not.

    BUT this point is about the sunk cost fallacy, so we've just gotta accept that those $45,000 are gone, and ask whether the even-less-useful 2L and 3L are ALSO worth $45,000 each.

    Certainly not.

  18. One, or two, or even three years of law school teach one to think like a lawyer? Seriously?!

    Learning how to use the law library is taught in the first two weeks of law school. Learning how to do a basic legal memorandum is taught in the first two months of law school.

    Learning the law of contracts, torts, etc. are taught in the bar review course over the course of six weeks.

    Everything else is a waste of time and money. The only really benefit law school confers is the privilege to sit for the bar exam.

    After your first job, no employer will ask you about your class rank or your law school grades.

  19. DJM, Please consider reading and commenting on this abstract and complicated opinion which has very obvious analogies in the law school job data reporting scam:

    In re Washington Mutual Mortgage Backed Securities Litigation, No. C09-37 (W.D. Wash.)

    It is amazing to see the double standard when comparing securities fraud ("lying about theq quality of an investment to get your money" fraud) to "lying about jobs to get your tuition money" fraud.

  20. @4:18 It should be painfully obvious to anybody who's even half paying attention that no one here is suggesting that "learning to think like a lawyer" takes 1, 2 or 3 years or is worth the tuition costs. I suggest taking a few hours to sober up and then reading the OP again.

  21. @terry Malloy

    I dropped out as a 2L, and many of my friends could not escape the sunk cost fallacy.

  22. If you're 2 years in, it's crazy not to finish. For 1 year of tuition, you get LIFETIME pedigree and status of being a lawyer.

    An unemployed lawyer (or law student) with $250,000 in debt ranks higher in the dating pool than a blue collar worker with $900,000 in the bank and a $120,000 income.

    And yes, attractive women would RATHER date a broke, $250k in debt lawyer with a solo practice that generates $400 a month than a plumber who lives in a castle overlooking the ocean.

    This is why the education racket will not be dying from the demand side. Ever.

    Try going to a black tie fundraiser in a large city and telling people you're a $150k farmer or plumber.

  23. The movie ticket is a terrible analogy. If you buy a ticket to a movie that you have yet to see, and you decide you don't want to see that movie, you can ask the theater for a refund, since you haven't made use of it yet.

    All theaters, at least that I'm aware of, will honor your refund request. You don't have to waste your $12 and 2 hours seeing something you don't want to see.

    A better analogy may be if you see the first movie of a trilogy and didn't like it, should you spend more money and time to see the other 2 movies?

    Even that's problematic, b/c a movie is only $12 or so, and maybe 2 hours of your time, unlike law school.

  24. Would it make it better for you if she said "a non-refundable movie ticket"?

    Get a grip.

  25. 4:18,
    Actually law school grades are very important beyond the first job. They shouldn't matter, but unfortunately they do.

  26. "If you’ve finished one or two years of law school, you’re a different person than you were as a 0L. You know a little more about law practice.... You’ve gained the basic skill of thinking like a lawyer and maybe some more specialized skills..."

    I am a fan of DJM's clear and honorable blog posts, and am aware of her sterling credentials and, far more importantly, that her scholarship, unlike that of so many of her colleagues, is actually useful to practitioners.

    I say that to preface my disagreement with the quoted sentences about the alleged gains of the first year or two of law school. I do not see "thinking like a lawyer" as a skill that law schools teach. Bright and successful undergrads, who have achieved top-notch grades and LSAT scores, already know how to construct an argument, argue both sides of an issue, and spot logical fallacies. They already think like lawyers prior to their first day of class.

    When legal academics say they teach students to think like lawyers, I see that as an excuse for hide-the-ball style instruction--taking a few months' worth of core doctrine and associated analytical framework, and stretching it to fill three long years (without telling students that that is the game).

    Instead of purporting to teach students to "think," law schools should train students to practice. Start with a bar review style crash course-- maybe slightly modified and expanded so students understand that the rules they learn are flexible and contigent. After that, put students through a structured series of clinics and externships to teach them to try a case, write an appeal, and represent clients in a few practice areas of the students' own choice.


  27. "Would it make it better for you if she said "a non-refundable movie ticket"?"


    A movie theater with that kind of policy should go out of business.

  28. I would surely give 10 on 10 for such incredible content.
    form a California Corporation

  29. she is unsure whether she will even pursue an academic career, given how exploitative and unfair higher education in America has become. laverne plumber


Note: Only a member of this blog may post a comment.