Hands typing on a laptop

Applied Knowledge FTW

So yesterday we talked about some basic economic principles, and today I'm going to go over how they apply to some common situations you might face when expressing your badassery.

One of the big ones I see from people is how to select the "niche" they enter. This is a clear case of people face tradeoffs, and it's why I don't talk about niche marketing the same way others do. Tradeoffs are easy to resolve; you simply examine your options, throw out the ones that are obviously wrong, and whichever ones are left - you need more information. If you can't get that information... whether because there isn't any, or you don't have time, or the information is too expensive... then the remaining choices are rationally identical and you can choose arbitrarily. If it turns out to be the wrong choice, there was absolutely no way for you to know that, and you need shoulder no blame for it.

This leads us into the next one, the cost of a thing is what you give up to get it. Sometimes people will make a decision and later discover it was a bad or wrong decision. But for some dumbass reason they just keep on doing the bad or wrong thing they're doing. Every day you are doing something bad or wrong, it is a day you are not doing anything good or right. This is an opportunity cost which you are paying on purpose. Stop it. When you know you are wrong, just drop what you are doing and fix it.

Now comes the insidious one, rational people think at the margin. This has an additional implication that people largely don't think when they're far from the margin. Back to the walkway idea; if you had to walk down a two-foot sidewalk on the roof of a building, you wouldn't think about this one bit if it were in the middle of the roof, far from the sides. Only when it's on the edge does it really matter. So if you're way out of someone's price range, it doesn't matter how many incentives you throw at them, they're not even really thinking about how to get your product. But on the flip side, if you put a stack of $2 crap next to the register, people will impulse buy. This is how a lot of people nickel-and-dime themselves into being perpetually broke from shiny object syndrome... they just can't help buying another $7 report, or another $2.99 Kindle book, or whatever. Cut that shit out. Think more.

People respond to incentives is another good one. Every week, I get an email from GOG.com - Good Old Games - where they've put a bunch of under-$10 games on sale for $3 to $6. The overwhelming majority of the time, I don't even want any of those games, but I still consistently spend $10 to $20 about half the time when I get that email. That's about $30 a month for shit I don't want or need, some of which I never even download, because it's a good deal. I know better than this and have been trying to stop it. (See previous paragraph.) Look for places where you're being influenced by an incentive, and ask yourself why the incentive makes the deal better. I don't even like SimCity 2000. Why am I willing to buy it at $6 but not at $10? I should simply not buy it at all.

Trade can make everyone better off. This one's my favourite. As you go through your daily life, just pay attention to what you buy and where you buy it. Each time, ask yourself whether you got screwed on the deal, or the vendor did. (In the above GOG.com example, it's totally me getting screwed on the deal.) And what you'll find, amazingly enough, is that the overwhelming majority of the time neither one of you got screwed. Every day, an ongoing series of trades will make most of the billions of people on this planet better off. Every single day.

And at last, Slembeck's principle: you can optimise for low cost or high utility, but never for both at once. Start considering which one you're focused on. When you look at toothpaste, are you looking for cost or utility? What about when you buy a car? Where are the differences in how and when you choose cost over utility? Now try to choose both. Just to see what happens. Notice that your decisions suddenly become much harder?

We've gone some distance in getting you past the bucket-brain stage, and I'll go over some of the principles behind that tomorrow.