{"id":84737,"date":"2022-11-19T05:21:00","date_gmt":"2022-11-19T09:21:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=84737"},"modified":"2022-11-29T16:37:31","modified_gmt":"2022-11-29T20:37:31","slug":"cost-benefit-analysis-decision-making","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/cost-benefit-analysis-decision-making\/","title":{"rendered":"Cost-Benefit Analysis: Decision-Making 101"},"content":{"rendered":"\n<p>What is a cost-benefit analysis? How does the cost-benefit method compare to the pro-con method of <a href=\"https:\/\/www.shortform.com\/blog\/methods-of-decision-making-crucial-conversations\/\">decision-making<\/a>? <\/p>\n\n\n\n<p>Cost-benefit analysis is a <a href=\"https:\/\/www.shortform.com\/blog\/principles-of-decision-making\/\">decision-making strategy<\/a> intended to weigh the costs of a decision or choice against its benefits. Unlike pro-con lists, a cost-benefit analysis lists the cumulative costs that a decision will incur alongside its cumulative benefits. It thus quantifies the consequences of your decision.&nbsp;<\/p>\n\n\n\n<p>Here&#8217;s how to use cost-benefit analysis to analyze your decisions. <\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-cost-benefit-analysis-and-decision-making\"><strong>Cost-Benefit Analysis and Decision-Making<\/strong><\/h2>\n\n\n\n<p>At a rudimentary level, a cost-benefit analysis weighs individual pros and cons on a scale of 10 to -10, summing these values to recommend a decision\u2014if the total is positive, the decision is worthwhile, and if it\u2019s negative, the cost is too high. For example:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh6.googleusercontent.com\/Kh2UEbkTuy-_W4HzW57kWzZpM525bA6OEhZwC-7msuwgT31reYL8UYxWyyifBA6e7jE74RA3ZL120eueXeU826MBo6WI8Fe5Ff5rauV8k2B5JFkfbANIB0euqu_E2CdDgasbJaCx3HmLtqfJx8LhBDdb91KG0nVsJMhcLlU45oco92Wi1sQDywsMk7Dbfg\" alt=\"\"\/><\/figure>\n\n\n\n<p>Unlike the pro-con method of decision-making, the cost-benefit analysis yields a more conclusive verdict: You shouldn\u2019t take the new position, since the cons outweigh the pros.&nbsp;<\/p>\n\n\n\n<p>To further improve your analysis, Weinberg and McCann recommend assigning each cost and benefit an explicit monetary value. For instance, relocating to a new city might cost $10,000, whereas an extra week of paid leave might be worth $3,000.&nbsp;<\/p>\n\n\n\n<p>(Shortform note: While assigning costs and benefits a monetary value can be helpful, remember that <a href=\"https:\/\/www.economicshelp.org\/blog\/12309\/concepts\/diminishing-marginal-utility-of-income-and-wealth\/#:~:text=Diminishing%20marginal%20utility%20of%20income%20and%20wealth%20suggests%20that%20as,increase%20in%20satisfaction%20and%20happiness.&amp;text=Utility%20means%20satisfaction%2C%20usefulness%2C%20happiness,to%20spend%20on%20a%20good.\">monetary value diminishes beyond a certain point<\/a>. For example, if you currently make $40,000 a year, a $15,000 raise could tangibly <a href=\"https:\/\/www.shortform.com\/blog\/how-to-improve-quality-of-life\/\">improve your quality of life<\/a>. However, if you\u2019re currently making $250,000, it\u2019s unlikely that a $15,000 raise would have the same impact. So, be sure to consider these <a href=\"https:\/\/www.shortform.com\/blog\/what-is-hedonic-adaptation\/\">diminishing returns<\/a> alongside your cost-benefit analysis.)<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Does Deliberation Yield More Satisfying Decisions?<\/strong><br><br>The decision-making tools Weinberg and McCann discuss all assume that deliberation leads us to <a href=\"https:\/\/www.shortform.com\/blog\/make-better-decisions\/\">make better decisions<\/a>. However, this assumption might be false; one recent set of studies showed that, even for <a href=\"https:\/\/www.shortform.com\/blog\/complex-decisions-2\/\">complex decisions<\/a>, <a href=\"https:\/\/pubmed.ncbi.nlm.nih.gov\/16484496\/\">people were generally more satisfied with decisions made without deliberation<\/a>. For example, among customers shopping for complex products at IKEA, those who purchased products without deliberating were more satisfied than those who purchased products after deliberating.<br><br>One possible explanation for these results is that customers who deliberate before making decisions have higher expectations, making them harder to satisfy. It\u2019s possible that conscious deliberation still leads to <em>better <\/em>decisions, even if it doesn\u2019t lead to more <em>satisfying <\/em>decisions. Consequently, this allows us to reconcile the studies\u2019 results with Weinberg and McCann\u2019s assumption that deliberation helps us make better decisions.<\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>What is a cost-benefit analysis? How does the cost-benefit method compare to the pro-con method of decision-making? Cost-benefit analysis is a decision-making strategy intended to weigh the costs of a decision or choice against its benefits. Unlike pro-con lists, a cost-benefit analysis lists the cumulative costs that a decision will incur alongside its cumulative benefits. It thus quantifies the consequences of your decision.&nbsp; Here&#8217;s how to use cost-benefit analysis to analyze your decisions.<\/p>\n","protected":false},"author":7,"featured_media":79707,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[9],"tags":[813],"class_list":["post-84737","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-psychology","tag-super-thinking","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Cost-Benefit Analysis: Decision-Making 101 - Shortform Books<\/title>\n<meta name=\"description\" content=\"Cost-benefit analysis weighs the costs of a decision against its benefits. 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