Navigating Decision-Making: From Dishwashers to Economics

Have you ever pondered a simple decision, only to realize it's more complex than you thought? Let's explore decision-making with a mundane example that came to my mind from time to time.

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It started with a dishwasher. Owning one in Switzerland was new to me, as I didn't have this convenience growing up in Indonesia or during my 7 years in Japan. Over time, I considered installing a second dishwasher in my kitchen. The reason was simple: it would keep the kitchen cleaner and save time. But then, a thought occurred: if I had a million dollars, would I still opt for two dishwashers? Probably not. I'd likely hire a maid. This realization led me down a path exploring various economic laws and concepts.

Law of Diminishing Returns

First up is the Law of Diminishing Returns. In economics, it's the point where adding more of a production factor results in a smaller increase in output. Applying this to the dishwasher scenario: while a second dishwasher may initially seem to improve efficiency, its utility diminishes compared to more effective solutions available in changed circumstances (like increased wealth).

Opportunity Cost

Next is Opportunity Cost, the concept of the next best alternative foregone. When choosing a second dishwasher, consider what else you could achieve with those resources. The opportunity cost might be significant. A change in financial status makes hiring a maid a better use of resources. It shows how opportunity costs shift with circumstances.

Constrained Thinking

Then, I delve into Constrained Thinking. This is where we limit our problem-solving within the bounds of our current situation. My then lifestyle constrained my initial solution - two dishwashers. This thinking pattern highlights why stepping back and reassessing situations from a broader perspective can lead to more effective solutions.

Satisficing and Path Dependence

Herbert Simon's concept of "Satisficing" explains settling for an adequate solution rather than the optimal one due to constraints. Path Dependence, a broader concept across multiple disciplines, suggests our present decisions are limited by our past choices and experiences, even if those past factors are no longer relevant.

I uncover layers of economic and psychological principles through a simple household decision. It demonstrates how our everyday choices are more than just practical decisions. Our resources, past experiences, and how we perceive our current situation influence them. Next time you're faced with a seemingly straightforward decision, remember the dishwasher dilemma. It might reveal more about your decision-making process than you think.

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