Handling Hidden Costs

As we live our lives, there are tendencies to overlook the costs of our actions.  In the blog “Unsettling Economics”, the discussion of hidden costs in society is mentioned, and made me think about the costs we overlook in everyday life.

In the post, the example used was a murder by a war veteran claiming trauma.  The point made is that the costs of war didn’t account for the effects seen in this scenario.

Hidden costs in everyday life I feel many people overlook include grocery shopping.  Suppose you are looking to go to the store, and there are three choices: the local market across the street, the Albertsons 10 minutes away, and the Costco 25 minutes away.  You realize that the prices of goods at the places get cheaper as you go further from your home, but there are actually some hidden costs you and others likely forget to factor into the decision making process.  For the Albertsons and Costco, going to either of the two locations for a discounted gallon of milk and some pasta may not be worth the costs (including gas and valuable time) of getting to the store.  Furthermore, Costco puts a barrier to enter the store, and the costs must be factored in for each time one attends the bulk store.

So what do we do to attempt to counter the hidden costs? We try to buy more to make the trip more valuable.  But in doing so, Albertsons and Costco get what they want from you.  While you may not have fallen for the hidden costs that typically shape the initial journey to the market, you have exceeded to purchase products that may not have been necessary.  Instead of buying the milk and pasta, you purchase Oreos, beer, and some plastic cups.  Hidden costs surround us everywhere we turn, and if one is not careful we will fall into the same trap over and over again.

On the macroeconomic level, a hidden cost that can be pointed out and not necessarily accounted for until it is too late comes when forecasting models.  Because of the art of using ARMA, specifically trying to accurately forecast data via historical figures, the attempts to rely heavily on historical data can be overlooked.  The costs, while in the previous example were merely a few dollars, could result in heavy swings among the economy as a whole.  The recognition of the harm in improper forecasts is important for economists in order to build faith among Americans and to bring stability to the economy.

The article, while short, really opens the mind up to the hidden costs we forget about every day.  So take some time to think of something that you may overlook, and really ask yourself what we could be doing to accurately choose the right decisions, where the costs never exceed the benefits.

References:

1. “Class, Pschology, and Capitalism”. Unsettling Economics.