I think sunk cost fallacy just counts as barrier to exit (I agree it’s good to be clear about when you’re talking about fallacies vs literal sunk costs, but your comments on that have felt sorta pedantic to me)
It’s not pedantic if it impacts the model significantly, and I think it does. Patient: “Doctor, it hurts when I do this”. Doctor: “Don’t do that.”.
If there are literal barriers to exit, that explains why people stay in situations they don’t like. If there are only perceptual barriers to exit, one has to ask why a small amount of thought/education isn’t sufficient to free them.
We probably do need to answer the question “is all of western middle-class ambition (single-family dwelling, atomic family, mild status games with the neighbors, etc.” a moral maze? Zvi seems to be saying no, but then “can’t make as much money if you leave this horrible company” isn’t an actual barrier, just a perceptual one.
I think trivial inconveniences are more than enough to count as a significant barrier to exit, and these are not trivial inconveniences being discussed. Small amounts of thought / education fail to change behavior all the time.
Hmm, okay looking more at the comment you were replying to, I agree that seems to be making a bit more of a point about the actual sunk cost rather than the fallacy.
I still feel like… okay, I’m not that familiar with the technical terms in economics and maybe there’s a more precise way of saying this, but, if people reliably aren’t choosing to leave a job because they’re invested in the job, that feels like something that should play a pretty similar role in the equation as “barrier to exit.”
Yes, I agree (I think with you elsethread, or maybe another commenter?) that this is true of many jobs. But the strength of the effect can still vary (and it makes sense to me for it to be stronger in jobs where most of the capital you acquire are relationships within the company). Meanwhile, even if most jobs have some kind of barrier to exit (due to plain inertia), combining that with stronger competition within the job could produce interesting effects.
Remember, the original issue here is superperfect competition. In order for the model to work, there has to be something forcing people to stay in the game when they would prefer to be out. E.g. I’m in the kitchen, I would prefer to be in the dining room, but something prevents me from leaving the kitchen. “All my relationships are in the kitchen” is not usually something which prevents me from leaving when I would already prefer to be out; it’s something which makes me not want to be out of the kitchen in the first place. Even if I were already in the dining room, I’d want to go back to the kitchen if all my relationships were there.
That’s the central confusion I see coming up here repeatedly: most of the reasons people are talking about for not leaving middle management are reasons to not want to be out; they are not reasons to stay in when someone does want to be out.
Even the typical usage of “invested in a job” suggests a reason that someone would not want to be out of the job, as opposed to forcing them to stay when they do want to be out.
That’s the problem here: if people stick in middle management because they do not want to be out, then we do not have superperfect competition. Rather, we have ordinary competition over a not-very-legible-but-entirely-legitimate kind of value.
EDIT: an analogy. We have a mix of hydrogen and oxygen gasses in a container. If they react to form water, they will be at lower energy—they “prefer” to be in that lower-energy state. But the two can’t react without a spark—there’s an energy barrier (exactly analogous to an exit barrier), and the barrier prevents the system from moving to a preferred state. The key distinction is between the relative energy of the two states, vs the height of the barrier.
Even the typical usage of “invested in a job” suggests a reason that someone would not want to be out of the job, as opposed to forcing them to stay when they do want to be out.
Okay, I think I get what you’re saying more here. But the distinction that feels important is something like: “if a system manipulates you in such a way that, initially, you thought you were getting a good deal, but upon reflection you got a bad deal and now it’s hard to change your mind about that deal”, that’s something that feels more appropriate to me to treat as an artificial barrier-to-exit, than as a mere sunk cost + opportunity cost.
I think there’s a spectrum of barriers-to-exit, ranging from mild trivial inconveniences to “literally a slave owner will shoot you if you try to escape.” I think most jobs have some nontrivial barrier in the form of inertia/inconvenience (which indeed affects the job market).
I think there’s some flaw in term “super-perfect-competition” in that in implies some spectrum from imperfect-perfect-superperfect, and in fact situations can be a mixture of “how perfect the competition is” plus “how high the barriers to exit are”, which varying effects depending how high each one is. (At the beginning, Zvi notes that [upper]-middle-management is nowhere near “Contract Drafting Em” levels of bad, but still bad enough to see particular effects.”
I’m not actually that sold on the claim, but the barrier to exit thing still seems like a meaningful part of the model.
But the distinction that feels important is something like: “if a system manipulates you in such a way that, initially, you thought you were getting a good deal, but upon reflection you got a bad deal and now it’s hard to change your mind about that deal”
I totally agree. That’s pointing to something very interesting. It has nothing whatsoever to do with competition, and I think trying to frame this whole thing in terms of competition and barriers to exit is making a complete mess of a potentially interesting idea.
Okay, that sentiment makes sense (although “nothing whatsoever to do with competition” still sounds false, even if the active ingredient is the manipulation, and it wasn’t necessary to hypothesize “super-perfect competition”, regular competition still clearly plays a role.
I think the confusion is in treating competition as an single attribute rather than a set of relationships between different entities. Specifying the competitive dimensions, and who is competing for what, will probably resolve it. Generally, competition sucks for competitors and is good for customers. Every transaction has two sides.
Companies are competing for employees. This competition is good for employees (and irksome for companies), and there’s a puzzle about why a person would stay in a toxic environment rather than going to a nicer one. My hypothesis is that the perceived rewards (including perhaps-incorrect estimates of future promotions) are actually there and those that stay are making a choice, rather than being trapped.
Employees are competing with each other for positions. This is bad for the losers, good for the winners, and good for the companies, to the extent that the dimensions of competition are actually aligned with what the business needs. My hypothesis is that the competition in these cases is on illegible dimensions, so it’s unclear (from outside, and perhaps from inside and below, unlikely from inside and above) that it’s good for anyone.
Companies are competing with each other for customer money. Depending on how much customers pay attention and how agile they are, there may be more or less slack in this competition, and that may lead to better or weaker alignment between company needs and employee competition dimensions.
The contradiction I don’t get in the analysis so far is the simultaneous claim that competition is so fierce that it’s gone beyond actual competition into some overfitted mechanism (super-competitive), AND that it’s mostly a problem in orgs that have enough slack to not really care about this waste.
The barrier to exit is the cost of rebuilding those relationships. The old saw, “It’s not what you know, it’s who you know,” applies quite heavily to management. The key value that managers add to front-line people is that quality of being a “human switchboard”, knowing who is working on what, who needs to talk to whom and, most importantly, who should not talk to whom. When a manager switches firms, all of that implicit knowledge has to be built up from zero. It’s a huge cost, and represents a significant barrier to exit.
True, but that’s a sunk cost, not a barrier to exit.
I think sunk cost fallacy just counts as barrier to exit (I agree it’s good to be clear about when you’re talking about fallacies vs literal sunk costs, but your comments on that have felt sorta pedantic to me)
It’s not pedantic if it impacts the model significantly, and I think it does. Patient: “Doctor, it hurts when I do this”. Doctor: “Don’t do that.”.
If there are literal barriers to exit, that explains why people stay in situations they don’t like. If there are only perceptual barriers to exit, one has to ask why a small amount of thought/education isn’t sufficient to free them.
We probably do need to answer the question “is all of western middle-class ambition (single-family dwelling, atomic family, mild status games with the neighbors, etc.” a moral maze? Zvi seems to be saying no, but then “can’t make as much money if you leave this horrible company” isn’t an actual barrier, just a perceptual one.
I think trivial inconveniences are more than enough to count as a significant barrier to exit, and these are not trivial inconveniences being discussed. Small amounts of thought / education fail to change behavior all the time.
Hmm, okay looking more at the comment you were replying to, I agree that seems to be making a bit more of a point about the actual sunk cost rather than the fallacy.
I still feel like… okay, I’m not that familiar with the technical terms in economics and maybe there’s a more precise way of saying this, but, if people reliably aren’t choosing to leave a job because they’re invested in the job, that feels like something that should play a pretty similar role in the equation as “barrier to exit.”
Yes, I agree (I think with you elsethread, or maybe another commenter?) that this is true of many jobs. But the strength of the effect can still vary (and it makes sense to me for it to be stronger in jobs where most of the capital you acquire are relationships within the company). Meanwhile, even if most jobs have some kind of barrier to exit (due to plain inertia), combining that with stronger competition within the job could produce interesting effects.
Remember, the original issue here is superperfect competition. In order for the model to work, there has to be something forcing people to stay in the game when they would prefer to be out. E.g. I’m in the kitchen, I would prefer to be in the dining room, but something prevents me from leaving the kitchen. “All my relationships are in the kitchen” is not usually something which prevents me from leaving when I would already prefer to be out; it’s something which makes me not want to be out of the kitchen in the first place. Even if I were already in the dining room, I’d want to go back to the kitchen if all my relationships were there.
That’s the central confusion I see coming up here repeatedly: most of the reasons people are talking about for not leaving middle management are reasons to not want to be out; they are not reasons to stay in when someone does want to be out.
Even the typical usage of “invested in a job” suggests a reason that someone would not want to be out of the job, as opposed to forcing them to stay when they do want to be out.
That’s the problem here: if people stick in middle management because they do not want to be out, then we do not have superperfect competition. Rather, we have ordinary competition over a not-very-legible-but-entirely-legitimate kind of value.
EDIT: an analogy. We have a mix of hydrogen and oxygen gasses in a container. If they react to form water, they will be at lower energy—they “prefer” to be in that lower-energy state. But the two can’t react without a spark—there’s an energy barrier (exactly analogous to an exit barrier), and the barrier prevents the system from moving to a preferred state. The key distinction is between the relative energy of the two states, vs the height of the barrier.
Okay, I think I get what you’re saying more here. But the distinction that feels important is something like: “if a system manipulates you in such a way that, initially, you thought you were getting a good deal, but upon reflection you got a bad deal and now it’s hard to change your mind about that deal”, that’s something that feels more appropriate to me to treat as an artificial barrier-to-exit, than as a mere sunk cost + opportunity cost.
I think there’s a spectrum of barriers-to-exit, ranging from mild trivial inconveniences to “literally a slave owner will shoot you if you try to escape.” I think most jobs have some nontrivial barrier in the form of inertia/inconvenience (which indeed affects the job market).
I think there’s some flaw in term “super-perfect-competition” in that in implies some spectrum from imperfect-perfect-superperfect, and in fact situations can be a mixture of “how perfect the competition is” plus “how high the barriers to exit are”, which varying effects depending how high each one is. (At the beginning, Zvi notes that [upper]-middle-management is nowhere near “Contract Drafting Em” levels of bad, but still bad enough to see particular effects.”
I’m not actually that sold on the claim, but the barrier to exit thing still seems like a meaningful part of the model.
I totally agree. That’s pointing to something very interesting. It has nothing whatsoever to do with competition, and I think trying to frame this whole thing in terms of competition and barriers to exit is making a complete mess of a potentially interesting idea.
Okay, that sentiment makes sense (although “nothing whatsoever to do with competition” still sounds false, even if the active ingredient is the manipulation, and it wasn’t necessary to hypothesize “super-perfect competition”, regular competition still clearly plays a role.
I think the confusion is in treating competition as an single attribute rather than a set of relationships between different entities. Specifying the competitive dimensions, and who is competing for what, will probably resolve it. Generally, competition sucks for competitors and is good for customers. Every transaction has two sides.
Companies are competing for employees. This competition is good for employees (and irksome for companies), and there’s a puzzle about why a person would stay in a toxic environment rather than going to a nicer one. My hypothesis is that the perceived rewards (including perhaps-incorrect estimates of future promotions) are actually there and those that stay are making a choice, rather than being trapped.
Employees are competing with each other for positions. This is bad for the losers, good for the winners, and good for the companies, to the extent that the dimensions of competition are actually aligned with what the business needs. My hypothesis is that the competition in these cases is on illegible dimensions, so it’s unclear (from outside, and perhaps from inside and below, unlikely from inside and above) that it’s good for anyone.
Companies are competing with each other for customer money. Depending on how much customers pay attention and how agile they are, there may be more or less slack in this competition, and that may lead to better or weaker alignment between company needs and employee competition dimensions.
The contradiction I don’t get in the analysis so far is the simultaneous claim that competition is so fierce that it’s gone beyond actual competition into some overfitted mechanism (super-competitive), AND that it’s mostly a problem in orgs that have enough slack to not really care about this waste.
The barrier to exit is the cost of rebuilding those relationships. The old saw, “It’s not what you know, it’s who you know,” applies quite heavily to management. The key value that managers add to front-line people is that quality of being a “human switchboard”, knowing who is working on what, who needs to talk to whom and, most importantly, who should not talk to whom. When a manager switches firms, all of that implicit knowledge has to be built up from zero. It’s a huge cost, and represents a significant barrier to exit.