An Economic Observation

at a very early age I learned that things have a price. their price is the cost. one of the very first equations one learns in a capitalistic society, sometime between sucking our thumbs and saying ‘mom’:

cost = money [1]

later, one enters college. there is no money, and for many, no time. the equation becomes more complex, one’s understanding of the universe more evolved. we began to understand that, despite the cost of the burrito in terms of money, it was more than made up in terms of the time it would have taken to go home and heat a .99 pizza. the pizza looked cheaper to equation [1], but to equation [2], was clearly more costly in this time pressured environment. thus, we evolve our understanding:

cost = money + time [2]

this equation persists as our understanding and serves us well for quite some time. However, it is not complete. We again, evolve our equation as our understandig becomes more clear:

true cost = money + time + risk [3]

Assessing each of these terms confounds many a person. many a dollar has been made and lost in the misevaluation of this equation (and a better evaluation by others), and the speculation of the value of each term is what makes a market, essentially different people coming to different conclusions about each of their values. if we can boil our lives down to 10 guiding principles, this captures one of mine, and a bit of an over-obsession with watching its misevaluation. spending an extra 20 minutes online to save an extra 5$ for an airline ticket. driving to the next state (30 minutes) to save .05 on a gallon of gas. clearly in some cases each of these can make sense, but this guiding observation can be used to understand if our thinking has gone awry. Observation [3] is an accurate way to analyze any situation for evaluating an optimal decision. The discussion should focus on each parties assessment of these factors.

If this is obvious, if it is known to everyone else, I wish somebody would have written it on the inside cover of my economics textbook.