Question

Why do people reach different decisions using cost-benefit analysis even under the same conditions? a. Different people live under different governments. b. Costs and benefits are both subjective. c. All values are ultimately monetary. d. Investment payoffs vary as time goes forward.

Answer 1

People reach different decisions using cost-benefit analysis because the costs and benefits are subjective, as they include more than just financial aspects, but also time and effort, known as transaction costs. This subjectivity affects the cost-benefit analyses performed by different individuals, leading to various decisions.

Step-by-step explanation:

People reach different decisions using cost-benefit analysis even under the same conditions because costs and benefits are both subjective (option b). This subjectivity is evident in everyday life, such as when voters go to the polls or when individuals make daily purchasing decisions. Different stakeholders, such as renters, homeowners, and business owners, will have varying perspectives on what constitutes a cost or a benefit, influencing their decisions markedly.

The process of cost-benefit analysis involves weighing marginal costs against marginal benefits and is depicted through a T-shaped chart showing costs on one side and benefits on the other. However, the economic approach to decision-making often doesn't match the complex realities of individual behavior and societal operations, which are rarely as orderly as the models suggest.

Further, costs are not merely financial; they include the use of any resources, such as time and effort, which are referred to as transaction costs. Due to the varied perceptions and values of individuals, as well as the diverse nature of costs beyond just monetary ones, cost-benefit analyses by different people can lead to different outcomes even with the same set of facts.

Answer 2

The reason people reach different decisions using cost-benefit analysis even under the same conditions is: b. Costs and benefits are both subjective.

Costs and benefits, within the context of decision-making, aren't always quantifiable or universally agreed upon. They're subjective, relying on personal judgments, values, preferences, and individual circumstances. What one person considers a significant benefit might be less valuable or even irrelevant to another person, and similarly for costs.

Additionally, individuals might have diverse goals or prioritize different outcomes. For instance, someone might prioritize short-term gains, while another might focus on long-term benefits or consider non-monetary factors like social impact or personal fulfillment.

Moreover, various external factors, cultural influences, or ethical considerations can affect how individuals evaluate costs and benefits, leading to distinct decisions even when presented with the same situation or information. Therefore, the subjectivity inherent in assessing costs and benefits leads to different conclusions among people, even when facing similar conditions.