The Economic Naturalist

The Benefit of Cost-Benefit Thinking

Suppose your alarm clock just broke and you need a replacement. You trot down to the local drugstore, grab a $20 digital clock and get in the checkout line. As you are waiting, the fellow behind you strikes up a conversation and mentions that the same clock is on sale at a nearby shopping center for $10. Would you go to the shopping center? Most people say they would. “Pay double? Do I look like an idiot?” Okay, now suppose you are about to buy a $2,510 laptop computer in an electronics store. As with the clock, you are about to pay when another shopper says the same computer is on sale at the shopping center for $2,500. Would you go to the shopping center? Most people say they wouldn’t. “Drive all that way for a measly ten bucks? Do I look like an idiot?”

And yet, as you have undoubtedly noticed, in each case the amount you could save is the same: $10. That’s the benefit you stand to gain. The cost of going to the shopping center is the same in each case, too, whether you get a new clock or a new computer. It’s whatever it costs to get in your car, drive there, and select and pay for your new item. Does this mean everyone is stupid...