3 Powerful Mental Models that will save you precious time (from Microeconomics)

People hate on economics. And fair enough, I hardly use my economics degree, but there are some hidden gems within the “dismal science.” Here are three powerful Mental Models that will save you precious time.

Sunk Costs

You bought an expensive jacket, but it’s uncomfortable to wear. Are you obligated to wear it? If you understand sunk costs, you know the answer is no because money (or time) already spent can never be returned. Don’t let poor past decisions hold you back.

“A Sunk Cost is a gift from your former self. The question is do you have to accept that gift?” — Seth Godin.

Opportunity cost

If you go to college, you also decide not to go to trade school, take a gap year or start a business. A decision for something is also a decision against everything else. We call the cost of your next best alternative: Opportunity cost. This model teaches you to consider all of your options.

Diminishing Marginal Returns

Your first lick of ice cream tastes the sweetest. Your first great self-help book rocks your world. As we continue an activity, the returns (benefits) usually become smaller. Be mindful that even productive pursuits can eventually turn unproductive.

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