The Costs of Decision Making

This is going to be a short post about a sensitive topic for me.

When making a decision, we generally have many choices. These choices provide us with some level of benefit, whether in money or happiness, though these rewards may not be initially obvious. When we are given choices, we normally take the highest return. Well, that lowest return doesn't go away; it takes a new face. The face of an opportunity cost, or the cost of the next best alternative.

Opportunity costs arise everyday in our lives, every time we make a choice, or from our unwavering personality. Many people won't see this as a cost, but the sound-minded individual will see the benefit of seeing the options before a choice is made.

Suppose that your a brain surgeon and at your job you make about $100 per hour. Now suppose that you have to mow your lawn. You now have some choices about what to do with your lawn. You can either take the time to mow it for roughly an hour, or you can pay the neighbor boy to mow it for you. So, your goal is to maximize your return. So what do you do?

Forgetting about the stress of your job as a brain surgeon or other things that may come up, it is plain to see that you should probably pay your neighbor's kid $10 to mow the lawn while you go to work. But what if he won't do it for ten dollars? How much are you going to pay him?

Rationally, as long as you are making more from going to work then you are saving by paying the kid. This means that he could charge you just up to $99.99 before you become indifferent on whether to go to work or mow your lawn.

It may seem like non-sense, but look at it. If you mow your lawn, you lose the $100 that you could have made. If you go to work and pay the kid $10, then you'll be $90 richer. Now, if you pay him $99.99, then you still make a profit of $.01. That's more money than you would have gotten otherwise.

I've had many arguments with accountants regarding this. I've had long conversations with people talking about taking a long drive just to shop at a cheaper store. At what point is this beneficial? If you're spending $20 in gas to drive to the Wal-Mart across the state and you only spend about $100 on groceries, but the amount that you saved by doing so is less than $20, you're worse off!

What my point is, sometimes what you might think is better isn't really at all. It just seems like it on the surface. Many people think about this anyway when they try to find where the stores are cheaper, but there are additional costs that you have to take into account. But I will give this: If it's your morals not to shop at one store than another, then that's an entirely different story.