Previous posts on this blog have discussed key principles of thinking like an economist and also whether this always makes sense. Highly relevant for this question, on her excellent Economists do it with models blog, Jodi Beggs has recently highlighted the fact that the cognitive costs of obtaining the information required to make decisions in this way can sometimes be excessive.
As an example she cites this scenario from the Cheap talk blog:
“You are planning a nice dinner and are shopping for the necessary groceries. After having already passed the green onions you are reminded that you actually need green onions upon discovering exactly that vegetable, in a bunch, bagged, and apparently abandoned by another shopper. Do you grab the bag before you or turn around and go out of your way to select your own bunch?”
I won’t go through the details of the 12 steps (see the above link) taken to infer from where the onions were abandoned that they were either:
“the best onions in the store and therefore poisoned, or they are worse than some onions back in the big pile but then those are poisoned.”
Based on this inference, the conclusion is that you should go for a take-away instead! As Beggs suggests, the level of effort undertaken to make a decision should depend upon the likelihood that this results in a more informed choice. In the above example this is highly questionable! She then provides the following example suggesting that when you obtain cash back in a store it is much better to ask for the money in small denomination notes. Whilst on face value this again seems like a strange conclusion, the economic logic provided suggests that it may be a much more rational decision than in the onion example.
Just for fun: reasons not to data an economist (thanks guys)…Economists do it with models, Jodi Beggs (25/10/12)
- Can you provide some examples of decisions where the cognitive costs of obtaining relevant information is very high?
- In these examples, would this information typically result in a better decision?
- What might be the opportunity cost of shopping in the manner described in the article?
- Explain how a rational economic actor should evaluate whether to obtain more information in order to facilitate making a decision.
- The article above suggests that there are a number of benefits from requesting small denomination notes, but what might be the costs involved in this strategy?