Decision - making process
The first lesson about making decisions is summarized in the phrase: "There is
no such thing as a free lunch." To get one thing that we like, we usually have to give
up another thing that we like. Making decisions requires trading off one goal against
another.
Consider a student who must decide how to allocate her most valuable
resource—her time. She can spend all of her time studying economics; she can spend
all her time studying psychology; or she can divide her time between the two fields.
For every hour she studies one subject, she gives up an hour she could have used
studying the other. And for every hour she spends studying, she gives up an hour that
she could have spent napping, bike riding, watching TV, or working at her part-time
job for some extra spending money.
Or consider parents deciding how to spend their family income. They can buy
food, clothing, or a family vacation. Or they can save some of the family income for
retirement or the children's college education. When they choose to spend an extra
dollar on one of these goods, they have one less dollar to spend on some other good.
When people are grouped into societies, they face different kinds of tradeoffs.
The classic tradeoff is between "guns and butter.'' The more we spend on national
defense to protect our shores from foreign aggressors (guns), the less we can spend
on personal goods to raise our standard of living at home (butter). Also important in
modern society is the tradeoff between a clean environment and a high level of
income. Laws that require firms to reduce pollution raise the cost of producing goods
and services. Because of the higher costs, these firms end up earning smaller profits,
paying lower wages, charging higher prices, or some combination of these three.
Thus, while pollution regulations give us the benefit of a cleaner environment and the
improved health that comes with it, they have the cost of reducing the incomes of the
firms' owners, workers, and customers.
Another tradeoff society faces is between efficiency and equity. Efficiency
means that society is getting the most it can from its scarce resources. Equity means
that the benefits of those resources are distributed fairly among society's members. In
other words, efficiency refers to the size of the economic pie, and equity refers to
how the pie is divided. Often, when government policies are being designed, these
two goals conflict.
Consider, for instance, policies aimed at achieving a more equal distribution of
economic well-being. Some of these policies, such as the welfare system or
unemployment insurance, try to help those members of society who are most in need.
Others, such as the individual income tax, ask the financially successful to contribute
more than others to support the government. Although these policies have the benefit
of achieving greater equity, they have a cost in terms of reduced efficiency. When the
government redistributes income from the rich to the poor, it reduces the reward for
working hard; as a result, people work less and produce fewer goods and services. In
other words, when the government tries to cut the economic pie into more equal
slices, the pie gets smaller.
Recognizing that people face tradeoffs does not by itself tell us what decisions
they will or should make. A student should not abandon the study of psychology just
because doing so would increase the time available for the study of economics.
Society should not stop protecting the environment just because environmental
regulations reduce our material standard of living. The poor should not be ignored
just because helping them distorts work incentives. Nonetheless, acknowledging life's
tradeoffs is important because people are likely to make good decisions only if they
understand the options that they have available.
Key concepts
efficiency – the property of society getting the most it can from its scarce resources
equity – the property of distributing economic prosperity fairly among the members of
society
Words to remember
to interact - взаимодействовать
to trade off - (зд.) сопоставить
efficiency - эффективность, производительность,
equity - справедливость, беспристрастность
tradeoff - альтернатива, соотношение выгод и потерь
reward - поощрение, вознаграждение
well-being - (материальное) благосостояние, достаток
to abandon - отказываться ( от чего-л. )
- Is there any connection between your leadership qualities and astrological signs?
- What is your astrological sign? How can you evaluate yourself as a leader? What are your main features?
- There are 12 astrological signs. They are…
Read the dialogue.
- Hi, Mark.
- Hi, Jane. What are you reading?
- It’s a horoscope for next year.
- Do you believe in horoscopes?
- Not really, but sometimes I have doubts about my future and I want
to find out what will happen. Then I read horoscopes.
- I never read horoscopes. I don’t believe in what they say.
- What is your zodiac sign?
- Libra.
- So you must be reliable, well-balanced, practical and rather
realistic. That’s why you don’t believe in horoscopes.
- That’s interesting. What else can you tell me about my personality?
- You are logical and generally calm.
- And what about my future?
- You will be really absent-minded this week. You will forget about
important meetings and it’s not the best time to be alone. You have to start
taking part in more activities – go on holiday.
- You know, it’s true that I have been feeling rather lonely recently.
But I can’t imagine myself being absent-minded. I never lose things or arrive
late for meetings. What about my career?
- You will begin to look for a new job. You can start thinking about
your future now.
- That’s amazing! I really want to change my job! My boss doesn’t
want to give me a rise and I’m beginning to feel fed up with my work there.
- So, it’s high time you changed it.
- Thanks for the lesson, but I’m still not sure if I should start
believing in horoscopes. What’s the time?
- It’s 6.40.
- What? I’m going to be late for the meeting concerning my new job!
- Didn’t I warn you?
Useful expressions
I (don’t) believe in horoscopes.
What can you tell me about my personality?
What is your zodiac sigh?
You are calm, well-balanced and realistic.
Think of the product or service that you have complained about. Tell your
partner what the problem was and whether it was solved. Build a dialogue.