The term \u201ccost-benefit analysis,\u201d 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.<\/p>\n
Entire books are written about this stuff, but I\u2019ll just take a cursory swipe at it today. You\u2019re not getting the view from an ivory tower; just the scene from my lowly beach chair.<\/p>\n
Here\u2019s my take on the gig: Many decisions we make in our lives seem to run up against a lopsided structure that\u2019s hard to weigh.<\/p>\n
On one hand, the benefits of a decision are often obvious, immediate, and limited. <\/p>\n
On the other hand, the costs of that decision are often abstract (not obvious), long-term, and potentially unlimited. <\/p>\n
Balancing one thing against the other, then, is not easy. We\u2019re left trying to compare patterns that are entirely different. <\/p>\n
On that note, if ever there was a loaded term in the English language, it\u2019s the word \u201ccost.\u201d <\/p>\n
A simpleton will tell you that \u201ccost\u201d is the price you see on the tag. If a pack of smokes carries a price of $5, well, that\u2019s the cost. <\/p>\n
It doesn\u2019t 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. <\/p>\n
An economist, more abstractly, will tell you that \u201ccost\u201d is the \u201cvalue of the best forsaken alternative.\u201d That\u2019s a little more enlightening than the simpleton\u2019s approach, but the world can still be a murky place. <\/p>\n
After all, how can we really measure the value of the best forsaken alternative? Quite often, we can\u2019t. Turning back to the smoking thing, let\u2019s say we\u2019ve decided to spark up. We\u2019ve traded one realm of probabilities (rooted in our entire life\u2019s course if we don\u2019t smoke) for another realm of probabilities (rooted in our entire life\u2019s course if we do smoke). We\u2019re swapping invisible arrays of abstraction here. We have changed the cards in the deck, so to speak, but we still don\u2019t know what the dealer will give us or when we\u2019ll get it. <\/p>\n
Let\u2019s agree on the premise that smoking isn\u2019t good for you. Now, can anybody calculate the cost associated with smoking one, and only one, cigarette? <\/p>\n
We can understand the benefit of that one cig. It\u2019s the immediate pleasure of having that single smoke. But the cost? I don\u2019t think we have any idea.<\/p>\n
A doctor would say that\u2019s 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. <\/p>\n
The gulf here, if it\u2019s to be bridged, is often bridged with a bit of intuition. We can call this \u201cjudgment\u201d or \u201cwisdom.\u201d 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. <\/p>\n
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\u2019t 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. <\/p>\n
Meanwhile, back in the corporate world, some of the most bone-headed reports I\u2019ve seen were labeled \u201ccost-benefit analysis,\u201d under the presumption that we\u2019d be cowed by the very term itself. When the term got buzzword status it became a pennant for groupthink. <\/p>\n
Well, like I said, entire books are written about this stuff. Having offered my beach chair outlook today, I\u2019m ready to break for lunch.<\/p>\n
By the way, does anybody know the health cost of having a bag of fries? I\u2019m, uh, asking for a friend. <\/p>\n","protected":false},"excerpt":{"rendered":"
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