Social Studies skills: Difference between revisions

m
Line 726: Line 726:
* see [https://fee.org/resources/i-pencil/ I, Pencil by Leonard E. Read - Foundation for Economic Education (fee.org)]
* see [https://fee.org/resources/i-pencil/ I, Pencil by Leonard E. Read - Foundation for Economic Education (fee.org)]


===Opportunity Cost===
**
* definition: The value of the next best choice one had when making a decision.
** i.e., the trade-off of a decision.
** Opportunity cost is a way of measuring your decisions: if I do this, would having done something else been more or less expensive? What did I give up in my decision?
* Frederic Bastiat developed the "Parable of the broken window" to express the concept
** known as the "Broken Window Fallacy*" or the "Glazier's Fallacy"
*** (* not to be confused with "Broken Windows Theory")
** from his essay, "''Ce qu'on voit et ce qu'on ne voit pas"'' ("What is seen and what is not seen")
** the parable discusses the "unseen" costs of fixing a broken window
*** even though the broken window provides benefit to a "glazier" makes money fixing it
*** the shopkeeper suffers the "unseen" costs of not being to do something else with that money
*** additionally, the opportunities to fix broken windows may create an "unintended consequence" of a "perverse incentive" for glaziers to go about breaking windows in order to make money fixing them
click EXPAND for a review of Bastiat's theory of "opportunity cost" and associated concepts of "unintended consequences" and "perverse incentives"
<div class="mw-collapsible mw-collapsed">
* ''Parable of the broken window''
** a shopkeeper has a careless son breaks a window
*** his neighbors argue that broken windows keep "glaziers" (window-makers) in business
**** if it costs 6 francs to fix, they argue, the money spent on the window is productive, as it goes to the glaziers
*** Bastiat replies that, yes, money has thus circulated, but "it takes no account of what is not seen" (''ce qu'on ne voit pas)''
**** the shopkeeper can't spend those 6 francs on something else of his choosing
**** or, perhaps, he has another need for 6 francs that he can not now fix
**** therefore the accident of the broken window prevents the shopkeeper from using his money more efficiently
** Bastiat writes, "Society loses the value of things which are uselessly destroyed"
** the parable also develops "the law of unintended consequences"
*** ex.: if the glaziers figure out they can pay a boy 1 franc to break windows, and they can still make a profit at 5 francs per window,
**** there will thereby exist a "perverse" incentive to break windows
***** "perverse incentive" = an incentive that produces a negative outcome
** economists have argued over the "opportunity costs" of damaging events:
*** disasters (hurricanes, earthquakes which require repair and thus create jobs & economic activity)
*** wars (spur economic activity and mobilization)
*** however, whatever the benefit it does not account for Bastiat's "unseen" costs and cannot in any way outweigh the suffering, death and loss of choice created by the disaster or war
* see: https://en.wikipedia.org/wiki/Parable_of_the_broken_window#Parable
</div>
* Examples:
** If you own land on an urban road, and you decide to build condos on it, what else might you have done, and what would that have cost -- or earned -- for you?
* Questions:
** If the U.S. imports oil from Saudi Arabia, is the U.S. giving up the potential of its own oil industry?
** If Saudi Arabia relies on oil, what is the cost of that reliance?


=== Herbert Stein's Law ===
=== Herbert Stein's Law ===
Line 799: Line 762:
! Efficiency of Outcome
! Efficiency of Outcome
|-  
|-  
| style="width: 30%"| '''You spend your money...'''  || '''on yourself'''  
| style="width: 30%" | '''You spend your money...'''  || '''on yourself'''  
||  
||
* seek highest value
* seek highest value
* with lowest cost  
* with lowest cost
* = maximum efficiency
* = maximum efficiency
|-
|-
|-  
|-  
| '''You spend someone else's money...''' || '''on yourself'''
| '''You spend someone else's money...''' || '''on yourself'''
||  
||
* seek highest value
* seek highest value
* no concern for cost
* no concern for cost
Line 813: Line 776:
|-
|-
| '''Someone spends their money...''' || '''on you'''  
| '''Someone spends their money...''' || '''on you'''  
||  
||
* seek lowest cost
* seek lowest cost
* no concern for quality
* no concern for quality
Line 820: Line 783:
|-
|-
| '''Someone else spends someone else's money...''' || '''on someone else'''  
| '''Someone else spends someone else's money...''' || '''on someone else'''  
||  
||
* no concern for cost
* no concern for cost
* no concern for quality
* no concern for quality
Line 829: Line 792:
|}
|}
</div>
</div>
=== Opportunity Cost ===
* definition: The value of the next best choice one had when making a decision.
** i.e., the trade-off of a decision.
** Opportunity cost is a way of measuring your decisions: if I do this, would having done something else been more or less expensive? What did I give up in my decision?
* Frederic Bastiat developed the "Parable of the broken window" to express the concept
** known as the "Broken Window Fallacy*" or the "Glazier's Fallacy"
*** (* not to be confused with "Broken Windows Theory")
** from his essay, "''Ce qu'on voit et ce qu'on ne voit pas"'' ("What is seen and what is not seen")
** the parable discusses the "unseen" costs of fixing a broken window
*** even though the broken window provides benefit to a "glazier" makes money fixing it
*** the shopkeeper suffers the "unseen" costs of not being to do something else with that money
*** additionally, the opportunities to fix broken windows may create an "unintended consequence" of a "perverse incentive" for glaziers to go about breaking windows in order to make money fixing them
click EXPAND for a review of Bastiat's theory of "opportunity cost" and associated concepts of "unintended consequences" and "perverse incentives"
<div class="mw-collapsible mw-collapsed">
* ''Parable of the broken window''
** a shopkeeper has a careless son breaks a window
*** his neighbors argue that broken windows keep "glaziers" (window-makers) in business
**** if it costs 6 francs to fix, they argue, the money spent on the window is productive, as it goes to the glaziers
*** Bastiat replies that, yes, money has thus circulated, but "it takes no account of what is not seen" (''ce qu'on ne voit pas)''
**** the shopkeeper can't spend those 6 francs on something else of his choosing
**** or, perhaps, he has another need for 6 francs that he can not now fix
**** therefore the accident of the broken window prevents the shopkeeper from using his money more efficiently
** Bastiat writes, "Society loses the value of things which are uselessly destroyed"
** the parable also develops "the law of unintended consequences"
*** ex.: if the glaziers figure out they can pay a boy 1 franc to break windows, and they can still make a profit at 5 francs per window,
**** there will thereby exist a "perverse" incentive to break windows
***** "perverse incentive" = an incentive that produces a negative outcome
** economists have argued over the "opportunity costs" of damaging events:
*** disasters (hurricanes, earthquakes which require repair and thus create jobs & economic activity)
*** wars (spur economic activity and mobilization)
*** however, whatever the benefit it does not account for Bastiat's "unseen" costs and cannot in any way outweigh the suffering, death and loss of choice created by the disaster or war
* see: https://en.wikipedia.org/wiki/Parable_of_the_broken_window#Parable
</div>
* Examples:
** If you own land on an urban road, and you decide to build condos on it, what else might you have done, and what would that have cost -- or earned -- for you?
* Questions:
** If the U.S. imports oil from Saudi Arabia, is the U.S. giving up the potential of its own oil industry?
** If Saudi Arabia relies on oil, what is the cost of that reliance?


=== Pareto Principle ===
=== Pareto Principle ===
Line 938: Line 940:
** Hume warned against jumping to conclusions based on limited knowledge
** Hume warned against jumping to conclusions based on limited knowledge
*** i.e. drawing conclusions based on our own confirmation bias
*** i.e. drawing conclusions based on our own confirmation bias
=== Gambler's fallacy ===
* the idea that past performance necessarily indicates future results
** either that since it happened in the past, it will continue
** or, if it happened in the past, it will not happen again
* the fallacy is especially important in random events, such as gambling (cards, dice)
* see Law of Averages and Regression to the Mean


=== Heinlein's Razor ===
=== Heinlein's Razor ===