Economic thinking in the real world
Economic thinking can help a lot with everyday decision making, but some choices are beyond its capability. Or are they?
Many of the decisions we make — from the trivial to the hellishly complicated — can be reduced to one of two types. One corresponds with the question whether a particular choice is a sensible one or whether the alternative is better. The other one relates to how we handle a scarce resource like money or time, and in particular how do we allocate it in such a way that we get the most out of it.
Both are based on a perspective that approaches every decision as involving costs and benefits: we don’t get anything for nothing, so we must sacrifice something we have in order to acquire something we want. What we sacrifice is typically a scarce resource — money or time, but also effort, energy and so on. When I was younger, so much younger than today, and not yet all that well versed in economic thinking, when on holiday in the south of France, I once drove 60km (and back) to an ice cream parlour where, a few years earlier, I had enjoyed a particularly nice lemon sorbet with vodka. Economic thinking would have showed the true cost of the treat: well over an hour’s travel, and about 8 litres of petrol. The sorbet was very enjoyable, but in hindsight I am not sure it…
