“We live in strange times” Paul Krugman
Occupy Wall Street
Trump’s Tariff Wars
What do these five events have in common?
They are all economic events.
Economics surrounds us.
Economics affects our daily life.
However, which parts of economics are essential?
How do we separate the critical events from the noise?
We live in a time of “fake news” including fake economic news.
Turn on any of the cable news shows and watch two “experts.”
They never agree, and we don’t know whom to believe.
This article is the start of a series on economics.
I want to make economics easy for any person to understand.
Thinking like an economist isn’t hard.
People think only geniuses can be economists.
But basic economic principles are easy to grasp.
Thinking like an economist will help you better understand the news.
By understanding economics, we become better citizens.
Do You Think Like an Economist?
You purchased tickets to an outside music concert that cost $250.
It is pouring rain, and you live an hour away.
Do you go?
Most people would go to the concert because they spent $250 on the tickets and don’t want to “waste” their money.
An economist won’t go if they don’t want to get wet or drive two hours in the rain.
You spent the money in the past and cannot get it back.
But you cannot get your time back either.
An economist thinks, “My life starts now. What occurred in the past is irrelevant.”
It doesn’t matter how much you paid for the tickets.
You don’t get your money back by attending the concert.
The tickets are a “sunk cost.”
You don’t get “sunk costs” back (unless you can return the tickets).
You should only attend the concert if it has current value to you.
Psychologists Two Reasons
It’s hard for most people to understand the ticket money is gone.
But their time isn’t, and they can do whatever they want with it.
Psychologists have two reasons why it’s so hard.
First, faulty framing.
We take our time and tie it to the ticket price.
Remember when your parents said, “Waste Not, Want Not.”
If you don’t want to go to the concert.
You’ve wasted your money.
If you go when you don’t want to go.
You’ve also wasted your time.
Cut your losses and just lose the money.
Use your time to do something else you enjoy.
Second, cognitive dissonance.
Wasting the $250 to most people feels painful.
Only the Rich can waste $250 and not feel like they wasted the money.
Most people go to the concert even if they don’t want to stand in the rain.
If they don’t go, they feel dissonance.
People make up a reason to go such as “it’s not raining that hard.”
People go to the concert, so they feel the money isn’t wasted.
A “Living Wage”
Jennifer, a restaurant server, working her minimum wage job can barely pay the bills. Some months, not all the bills…
How do we apply this article to our everyday lives?
First, understand the difference between sunk costs and future costs.
Second, don’t do activities to justify sunk costs.
If you stand in the rain at the concert, you can’t read that new book you bought.
Third, do you really want to do an activity or are you trying to prevent cognitive dissonance?
Economics helps us to act more rationally.
Do you want great content? Sign up for my newsletter here!
Christopher Oldcorn is a writer and journalist. He holds a BA in Psychology from Laurentian University, and a post-grad in Research Analysis from Georgian College. Christopher studied at The Centre for Investigative Journalism (Goldsmiths, University of London). Recognized as a Top Writer in Government, Politics, Books, Climate Change, Productivity, Creativity, & Writing.