Cost-Benefit Analysis
Introduced| English | Meaning |
|---|---|
| cost-benefit analysis/kɒst ˈbenɪfɪt əˈnæləsɪs/ | Comparing the relevant costs and benefits of possible actions, including opportunity costs where appropriate. |
| opportunity cost/ɒpəˈtjuːnɪti kɒst/ | The value of the best alternative forgone when a choice is made. |
| sunk cost/sʌŋk kɒst/ | A cost already incurred that cannot be recovered. |
| sunk-cost fallacy/sʌŋk kɒst ˈfæləsi/ | Continuing a course of action because of resources already spent, rather than judging its future costs and benefits. |
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:
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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:
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Opportunity cost includes the wages given up, not just the money paid.
Match each idea to its meaning.
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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.
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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.
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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?
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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.
Write from a sunk cost of 30
- A 30 dollar gym fee is already paid.
- The next hour would be better spent studying.
You already paid 30 dollars for a gym day, but you now feel tired and would learn more by studying. Should the 30 dollars decide the next hour?
A cost already paid does not change with the next choice.
What should decide the next hour?
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The 30 dollars is already spent, so only the next hour's benefit matters.