Previous Story
Costs and benefits
Many decisions we make in our lives seem to run up against a lopsided structure that’s hard to weigh. On one hand, the benefits of a decision are often obvious, immediate, and limited. On the other hand, the costs of that decision are often abstract (not obvious), long-term, and potentially unlimited.
The term “cost-benefit analysis,” once the purview of textbooks in economics and finance, is a common term these days. As the name suggests, it basically means making a decision by weighing its downsides (costs) against its upsides (benefits). This might seem like a childishly simple notion, but the concept is not as simple as it looks.
Entire books are written about this stuff, but I’ll just take a cursory swipe at it today. You’re not getting the view from an ivory tower; just the scene from my lowly beach chair.
Here’s my take on the gig: Many decisions we make in our lives seem to run up against a lopsided structure that’s hard to weigh.
On one hand, the benefits of a decision are often obvious, immediate, and limited.
On the other hand, the costs of that decision are often abstract (not obvious), long-term, and potentially unlimited.
Balancing one thing against the other, then, is not easy. We’re left trying to compare patterns that are entirely different.
On that note, if ever there was a loaded term in the English language, it’s the word “cost.”
A simpleton will tell you that “cost” is the price you see on the tag. If a pack of smokes carries a price of $5, well, that’s the cost.
It doesn’t take too much imagination to consider that the actual impact on your life from smoking is likely to be far greater than the money you spent on your cigs. The cost, in other words, can be a lot bigger than what you spent.
An economist, more abstractly, will tell you that “cost” is the “value of the best forsaken alternative.” That’s a little more enlightening than the simpleton’s approach, but the world can still be a murky place.
After all, how can we really measure the value of the best forsaken alternative? Quite often, we can’t. Turning back to the smoking thing, let’s say we’ve decided to spark up. We’ve traded one realm of probabilities (rooted in our entire life’s course if we don’t smoke) for another realm of probabilities (rooted in our entire life’s course if we do smoke). We’re swapping invisible arrays of abstraction here. We have changed the cards in the deck, so to speak, but we still don’t know what the dealer will give us or when we’ll get it.
Let’s agree on the premise that smoking isn’t good for you. Now, can anybody calculate the cost associated with smoking one, and only one, cigarette?
We can understand the benefit of that one cig. It’s the immediate pleasure of having that single smoke. But the cost? I don’t think we have any idea.
A doctor would say that’s not the point. But an economist would say that it is the entire point; after all, consumption occurs in single-unit increments, so, too, do the related decisions, and the analysis of these increments is what economics, and, incidentally, cost-benefit analysis, is all about.
The gulf here, if it’s to be bridged, is often bridged with a bit of intuition. We can call this “judgment” or “wisdom.” We all know that certain things are bad for us, even if we acknowledge that actually calculating the harm in everyday decision making is not only impractical, but quite likely impossible. In other words, the objective notion of cost-benefit analysis can get bogged down in its own tire tracks, and the only way out of the ditch is to pull things along with our subjective reckoning.
That might make for nodded heads and polite agreement at a genteel lunch gathering, thus keeping the doctors and the economists on cordial terms, but it won’t actually change anything. Fact is, people still fall into the same basic traps today that people fell into a decade ago, a century ago, a millennium ago. We might have fancier words for various situations these days, but the situations themselves remain stubbornly rooted in our nature.
Meanwhile, back in the corporate world, some of the most bone-headed reports I’ve seen were labeled “cost-benefit analysis,” under the presumption that we’d be cowed by the very term itself. When the term got buzzword status it became a pennant for groupthink.
Well, like I said, entire books are written about this stuff. Having offered my beach chair outlook today, I’m ready to break for lunch.
By the way, does anybody know the health cost of having a bag of fries? I’m, uh, asking for a friend.
