Thursday, January 15, 2009

Decision-making

The Keystone Economic Principles related to this post are as follows:
1. We all make choices.
and
3. All choices have consequences.

Neal Templin's "Cheapskate" column in The Wall Street Journal is rapidly becoming a "must-read" for me. He is entertaining, informative, and his experiences connect. Today's column discusses some of the simple decisions we make, never thinking that they will affect our finances. But ultimately they have a higher cost than we thought (or, in some cases, didn't think). His first example illustrates a choice that many people would have trouble making using economic principles, but it still resonates. The others are clearer.

I would suggest this can be the basis for discussion in a personal finance course - what choices do we make without thinking about the consequences? What time-frames do we use in making choices?

But I also think a basic economics course can benefit from this story, because the choices made are, with one exception, outside the realm of decision-making as our students frame it in class. And this encourages them to think outside the box – apply the “economic way of thinking.”

I have an example that fits this category. Back when I still worked in Chicago, I was rushing to catch a train in order to be at the Federal Reserve Bank to hear Chairman Greenspan address the Bank staff. As I boarded the train, I stumbled on the stairs and my briefcase fell outside. Unfortunately, as I fell, the "door closing" chime sounded. I quickly stood up and started back down the stairs to retrieve my briefcase, but instead I tripped, fell out of the car onto the platform, and broke my wrist. I often think about what I would have done differently - leave the briefcase - miss the train. But the cost was definitely higher than just missing a speech.

Do you have a decision that would fit in this category that you use with your students? Would you mind sharing? I look forward to your comments.

2 comments:

Julia said...

It's a snow day here today. Your personal example, which I remember seeing the consequences of, hits the mark. I no doubt have many such stories to tell, but instead I offer the "choice" example I give students in my economics classes every winter. As you know I live in a "lake effect" snow area. Students at our high school often rush to avoid tardies on wintery days. There are significant penalties for chronic tardies--even grade reduction. (Whether I agree with this policy is another story.) I tell students to take the tardy because the potential costs are too great. I ask the students what these potential costs are and they immediately bring up personal injury to themselves and passengers, possible injury to passengers in other cars and at the very least, property damage to their cars and higher insurance rates. It's an interesting discussion and I hope valuable in their decision making as they drive to school on icy and snow-covered roads. I am interested in your opinion on "holding" attendance until later in first period when driving conditions are tricky. The administration believes there will be students who take advantage of "held" attendance and will intentionally be late. Using MB vs.MC, what would be YOUR administrative decision?

Hawaiian Teacher said...

I have two stories to share:

One is from my son's experience. He was sent to a private school and living with relatives for his senior year in high school. My son was required to attend a 6 a.m. class at his school. It was November and his birthday. The alarm went off, and he decided that he was still tired from studying and football practice the day before, and since it was his birthday, he was going to give himself a birthday present and sleep in and miss his early morning class. However, he overslept, missed his school bus, was late to school, and was sent to the office. He was given detention to return to school on Saturday to do some after school work on the weekend. He explained to me that he wished he hadn't given himself a present, and the cost was much greater than he had ever imagined!

The other example is that my family and I moved to the Kingdom of Tonga and lived there from 1985 to 2003. That decision carried a lot of costs. We could not purchase many American goods as most imports were from Australia and New Zealand which just were different in many cases, and we had to adjust the lifestyle for which we were accustomed. But we believed we gained a lot as well. It goes back to assessing goals and values. Living in Tonga meant giving up economic goods/services and other practices in exchange for learning a new language, culture, and developing stronger family ties. We valued the non-urban environment were gangs and violence were practically non-extistent. Many could not live long without the "economic goods" available from living in a country with a high standard of living and had great difficulties adjusting to a country with a much lower standard of living. The discuassion of trade offs are under the banner of "quality of life" vs. the "quantity of life," and covers value judgments and non-economic considerations related to standards of living. It was a great experience and my children appreciated the opportunity this gave them to live outside the USA.

Kim, the Hawaiian Teacher