Decisions, decisions, decisions, we all have to make them. Some of us struggle with making a decision while others are good at it. Some of us would rather have others make those decisions for us while others simply just flip a coin as a compass for directions. In psychology decision making is categorize as the cognitive process that encompasses our ability to select a course of action among several alternative possibilities. It is the process of identifying and picking alternatives based on value preferences. Every decision-making may produce a final choice that may or may not need prompt action. A major part of decision making is the total priority for each alternative base, upon our own valued system. Meaning, that we can rank our chooses based on a ranking system. Overall, decision-making is something we do every day.
In addition to the psychological definition of decision making, economics define decision making as the process of identifying alternatives courses and choosing an appropriate alternative when faced with decisions. Likewise, the goal of every decision is to obtain a form of reward. Every reward requires some sort of a trade-off or sacrifice. For instance, when an individual made the decision to attend college or university, they certainly desired a reward. But what was the sacrifice of that? some sacrifices cannot be measured in dollars, such as loss of sleep, close friends, and those home-cooked meals. Some, however, can be measured such as the cost of tuition, room and board, and books. These are all the examples that can be termed as an opportunity cost. Opportunity cost is the reward. It is the basic relationship between scarcity and choice. Additionally, it is the cost of one item that could result in one losing the opportunity to do or consume something else. Moreover, as decision-makers, we all want the reward or benefit from a decision to be greater than the sacrifice or cost required to attain it. That relationship between the sacrifice and reward is known as cost-benefit analysis. Cost-benefits analysis has to do with the trade-off between the rewards of choosing a given alternative and what had to be given up in order to obtain those rewards. Therefore, whenever we are faced with making a decision, there is a lot that goes into play whether we are aware of it or not. Each decision has an opportunity cost, trade-offs. and cost-benefits analysis. So the next time you are faced with a decision, think about what are the rewards, sacrifices and the economics behind that.