June 29, 2010

Economics terms

It's really rather remarkable how much one blog can influence me. I've spoken before about The Happiness Project.  The writer there said something that struck me today:
If you try to preserve every opportunity, you can’t move forward.
Yeah, that's me, all right. I feel often that I'm wasting time, time I could be spent doing this thing, that thing. I also have trouble getting started because I'm waiting for the perfect moment, or the perfect person, or the perfect set of supplies or circumstances.

In her most recent post she also talked about opportunity cost, a term I learned at Econ Camp that really stuck with me.
Opportunity cost is the cost related to the next-best choice available to someone who has picked between several mutually exclusive choices
Relatedly, there I also learned the term sunk cost. Both of these ideas were crucial to how I looked at the world.
In traditional microeconomic theory, only prospective (future) costs are relevant to an investment decision. Traditional economics proposes that an economic actor not let sunk costs influence one's decisions, because doing so would not be rationally assessing a decision exclusively on its own merits
I had to learn that there's no point worrying on sunk cost. Once it's gone, it's gone. Wikipedia has an excellent example:

Economists argue that sunk costs are not taken into account when making rational decisions. In the case of the movie ticket, the ticket buyer can choose between the following two end results:

1.Having paid the price of the ticket and having suffered watching a movie that he does not want to see, or;
2.Having paid the price of the ticket and having used the time to do something more fun.

In either case, the ticket-buyer has "paid the price of the ticket" so "that part" of the decision no longer affects the future. If the ticket-buyer regrets buying the ticket, the current decision should be based on whether he wants to see the movie at all, regardless of the price, just as if he were to go to a free movie. The economist will suggest that, since the second option involves suffering in only one way (spent money), while the first involves suffering in two (spent money plus wasted time), option two is obviously preferable.

I love days when I get to go in late and can watch The West Wing on Bravo in the morning. I want President Bartlett to be my president. I want to be like CJ, want to have Amy Gardner's job, and want to work with everyone in that office. And Sam. (Rob Lowe, swoon). I keep forgetting that's Mary Louise Parker because she looks so young. She is ageless. And Marlee Matlin! Everyone was on that show.

My favorite quote from this morning's episode "Women of Qumar"

SAM:The President's being sued.
SAM: The Washington Times' running it under the headline "Bartlet Accused of Contributory Negligence."
LEO: I didn't know The Washington Times could spell all those words


  1. I have the first 5 seasons of West Wing so we should have a marathon watching party sometime. Perferably of seasons 2-3 because I love Sam. And Charlie. Omg, Charlie. Double swoon.

    Gone for the next few days but want to hang out soon!

  2. This is great. I try not to focus on sunk cost anymore and be more introspective about what led to the money being lost in the first place so I don't make the same mistakes again.

    This goes for shopping, projects, etc... and being realistic and honest about my own ability to see something to completion and my real need for anything in the first place.

    Oh, and perfect moments... you have to make them.
    Great post.