Should I take my own great leap forward?

12th December, 2009

Dear Economist,
I was recently given notice that my position will be eliminated at the end of the month. My employer is offering two months’ severance.
I’m thinking about changing industries, from finance to clean tech, and moving from the US to Europe. I’m in my late twenties, single, and able to relocate – something less likely to be the case after my next position.
Making such a drastic change may prove difficult and take longer than two months. On the other hand, I can stay here and take a job in the same industry relatively quickly. Should I go big and risk a long unemployment or play it safe and take a job now?

Dear Jeremy,

“Behavioural economics” work on the boundary between psychology and economics offers relevant insights here. Unfortunately, it provides two entirely contradictory messages.

On one hand, you may be suffering from “hyperbolic discounting” – a tendency to weigh immediate costs too heavily and ignore longer-term benefits. You have three or four decades ahead of you, and yet you are focusing on a few weeks’ unemployment.

On the other hand, economist Johannes Spinnewijn has discovered that job-searchers tend to be far too optimistic about their chances of finding a new job quickly. So you are probably underestimating the risks at the same time as you focus too much upon them.

So let me put aside the contradictions of behavioural economics and rely instead on economic history. Experience suggests that grand transformative projects – Mao’s Great Leap Forward, the UK’s nuclear power “jackpot” – end in disaster. A gradual approach is better. Your own plan is to switch industries and continents from a precarious position on the dole. Would it really be impossible to reach your dream career step by step instead?

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