Cost-Benefit Analysis
| English | Chinese | Pinyin |
|---|---|---|
| cost-benefit analysis | 成本收益分析 | chéng běn shōu yì fēn xī |
| opportunity cost | 机会成本 | jī huì chéng běn |
| sunk cost | 沉没成本 | chén mò chéng běn |
| sunk-cost fallacy | 沉没成本谬误 | chén mò chéng běn miù wù |
The $50 ticket you should ignore
- You already paid $50 for a concert ticket.
- On the night you feel ill and would honestly rather stay home.
- Should you drag yourself out just to "get your money's worth"?
- Economics gives a sharp answer — and the $50 has nothing to do with it.
Weigh benefit against cost
- Cost-benefit analysis 成本收益分析: take an action only when its benefit is at least as large as its cost.
- Weigh what you gain against what you give up, then decide.
- If benefit ≥ cost, do it; if not, don't.
Cost-benefit analysis says to take an action when:
Act only when benefit ≥ cost — comparing what you gain with what you give up.
The real cost is opportunity cost
- The cost that matters is the opportunity cost 机会成本 — the best alternative given up — not just the money spent.
- A dollar figure often misses the real cost.
- The true cost of a year at university is not only tuition, but also the wages you could have earned instead.
Which costs count?
A good decision weighs future benefits and costs. Money already spent — a sunk cost — is gone and should be ignored.
The true cost of a year at university is best measured as:
Opportunity cost includes the wages given up, not just the money paid.
Match each idea to its meaning.
Decisions use opportunity cost and cost-benefit analysis; sunk costs are ignored.
Ignore sunk costs
- A sunk cost 沉没成本 is money already spent that you cannot get back.
- Only future costs and benefits should affect a decision — the past is gone either way.
- Back to the ticket: the $50 is spent whether you go or not, so ignore it and just choose what you now prefer.
- Going only "to get your money's worth" is the sunk-cost fallacy 沉没成本谬误.
You should factor in money already spent (a sunk cost) when deciding what to do next.
Sunk costs are gone either way — only future costs and benefits should affect the choice.
Money already spent that cannot be recovered is a ______ cost.
A sunk cost should never influence a forward-looking decision.
You paid $50 for a ticket but now feel ill and would prefer to stay home. What should you do?
Going just to "use" the sunk $50 is the sunk-cost fallacy. Choose by future benefit vs cost.
Cost-benefit analysis: act only when benefit ≥ cost. The right cost is the opportunity cost (the best alternative given up), not just money. Ignore sunk costs — money already spent — because only future costs and benefits should change your choice.