Of course. But I still can’t convince my mother that paying $10 for delivery of a $3 peg is better than driving all the way to a remote storehouse to get it yourself, even though the cost of the delivery is significantly greater than cost of the goods and hence feels “not worth it”.
It’s useful to hold all sorts of quantities in your mind while considering a decision, but it’s important to know what they’re for, so that they aid in accuracy of the decision, and not confuse you instead. To avoid this confusion, first thing is to know a reliable (if inefficient) methodology, and only then develop advanced tricks.
But I still can’t convince my mother that paying $10 for delivery of a $3 peg is better than driving all the way to a remote storehouse to get it yourself, even though the cost of the delivery is significantly greater than cost of the goods and hence feels “not worth it”.
I agree that that is a common and buggy way to think. I probably tend to do that myself when I’m not careful, so I concede that it is a problem. But your example has someone comparing part of the cost of an action with another part of the cost of that same action. I’m talking about comparing the cost with the benefit of the same action. Are you saying that even doing that could put one at more risk of making the mistaken comparison that you describe?
At any rate, that wasn’t the kind of comparison that lukeprog was doing. Could you elaborate on the kinds of mistakes that you see flowing from what he said? One possible confusion is using the sign of (benefit) – (cost) of an action (measured in lives saved, say) to decide whether to do it. Do you see others?
That kind of comparison just completely ignores opportunity costs, so it will result in mistakes any time they are significant.
Making the comparison is not the last step before decision. The comparison itself ignores opportunity costs, but it doesn’t keep you from going on to perform an opportunity-cost check. The output of the comparison can then be combined with the output of the opportunity-cost check to determine a decision.
Of course. But I still can’t convince my mother that paying $10 for delivery of a $3 peg is better than driving all the way to a remote storehouse to get it yourself, even though the cost of the delivery is significantly greater than cost of the goods and hence feels “not worth it”.
It’s useful to hold all sorts of quantities in your mind while considering a decision, but it’s important to know what they’re for, so that they aid in accuracy of the decision, and not confuse you instead. To avoid this confusion, first thing is to know a reliable (if inefficient) methodology, and only then develop advanced tricks.
I agree that that is a common and buggy way to think. I probably tend to do that myself when I’m not careful, so I concede that it is a problem. But your example has someone comparing part of the cost of an action with another part of the cost of that same action. I’m talking about comparing the cost with the benefit of the same action. Are you saying that even doing that could put one at more risk of making the mistaken comparison that you describe?
At any rate, that wasn’t the kind of comparison that lukeprog was doing. Could you elaborate on the kinds of mistakes that you see flowing from what he said? One possible confusion is using the sign of (benefit) – (cost) of an action (measured in lives saved, say) to decide whether to do it. Do you see others?
That kind of comparison just completely ignores opportunity costs, so it will result in mistakes any time they are significant.
Making the comparison is not the last step before decision. The comparison itself ignores opportunity costs, but it doesn’t keep you from going on to perform an opportunity-cost check. The output of the comparison can then be combined with the output of the opportunity-cost check to determine a decision.