Economic Analysis of Business Practice
The writers did a phenomenal job creating a comedy bit about benefits, costs and decisions which can correlate to almost any industry. The decision Sheldon needed to make based on benefits and costs can be applied to just about every market. In the automobile industry a choice between Chevy and Ford or Audi and Lexis or in the computer market the decision between Dell and HP can fit the same model as Sheldon’s choice between PS4 and Xbox One. It can become frustrating to spend time researching comparable products and creating an analysis based on the benefits and costs to not arrive at a conclusive decision. Sometimes the products are so close with advantages and disadvantages on both sides that the consumer could second guess their decision or have doubts after a purchase. Competition and innovation deliver a consistent cycle of new and improved products at competitive costs. The consumer has options through competition which protects them from monopolies, excessive pricing or poor products. If you look at the computer space an individual has a tremendous number of brands and models to select from which provides competitive pricing and different benefits which impacts the decision-making process. From personal experience it took me at least three weeks to decide on my next computer. I went over every detail to make sure I was getting exactly what I wanted for the best price. Sometimes you can drive yourself crazy the way Sheldon did in this video. The Costco model is very interesting because they simplify the experience for the consumer. A Costco store has roughly 4,000 items where a local supermarket stocks around 50,000 items. If we look at Ketchup, the local supermarket has multiple brands and sizes which can leave the customer debating which one is the best deal or the correct choice. Costco carries one brand which comes in one size and one package. According to Costco limited selection makes it easier for the consumer to choose because the decision-making process is either non-existent or limited. When you look at the Costco model it makes sense for many items. Shopping for groceries and everyday household items becomes easier with a limited selection because the consumer isn’t wasting time reading packages, researching on their phone or having a mental debate with themselves. I can honestly say when I shop at Costco I rarely second guess myself vs. when I shop at the grocery store. https://www.cnbc.com/id/47175492
I agree, Steven (and Michael), that this is a great video, as a comedy scene, but also about benefits, costs and decisions. Sheldon painstakingly researchers the different gaming consoles and, before entering the store, makes a logical decision as to which is the best console for him. But beyond the actual research of physical costs and comparisons, I think what’s most interesting, and most entertaining, is in recognizing the existence of the opportunity costs Sheldon is facing in his decision (and how much emotional grief these alternatives are causing him!). The opportunity cost, as we’ve learned in the text, is the what we give up in order to pursue another choice (Froeb, McCann, Shor, & Ward, 2016, pp. 31-32). With each benefit of the Xbox One Sheldon is faced with putting a price or cost on what he is willing to give up from the PlayStation 4, and vice versa. Ultimately Sheldon is unable to weight the opportunity costs of each alternative, and they have to come back the next day.Related, I thought it was also endearing that Amy tries to resolve the situation by offering to purchase both systems, however, she fails to recognize the hidden-costs of the purchase of the entertainment center, and this scenario causes Sheldon to face another dilemma of opportunity costs. Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). Managerial economics: A problem solving approach (Fourth edition ed.). Boston, MA: Cengage Learning.
In the sketch, I noticed how Sheldon was asked to flip a coin. This was based on the work of Steven Levitt. Levitt (2016) in a coin tossing field experiment believes that for important decisions (e.g. quitting a job or ending a relationship), those who make a change (regardless of the outcome of the coin toss) report being substantially happier two months and six months later. Individuals who are told by the coin toss to make a change are much more likely to make a change and are happier six months later than those who were told by the coin to maintain the status quo. The results of Levitt’s paper suggest that people may be excessively cautious when facing life-changing choices. In this video we see the economic concept of costs. Costs being the alternative of what you give up. What Sheldon should keep in mind is avoiding both the fixed cost and sunk cost fallacy. Not to make the decision that is by using irrelevant costs and benefits. In closing, as Froeb et al (2014) points out, when you are trying to make a difficult decision, remember two things. First recognize the relevant benefits and costs of the decision, and second don’t forget to consider the consequences. Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial economics: A problem solving approach (4th ed.). Boston, MA: Cengage Learning.Levitt, S. (2016). Heads or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness. doi:10.3386/w22487