The Marginal Decision Rule

I just learned about marginal analysis and it completely changes how I see decision-making.

There’s an equation that economists use to figure out buyer behavior, but I thought about it more and you can use it to predict any decision somebody makes.

It’s called the Marginal Decision Rule

And it says that the optimal level, is when the marginal cost is equal to the marginal benefit. Let me explain.

Let’s say you’re at a food court. And they’re selling pizza slices for $5.

And you are really hungry, so the approximate value you would get from that pizza is $9.

So you eat the pizza, but now you’re not as hungry, and the marginal benefit you would get from another slice is only $3.

Well now, your marinal cost exceeds the marginal benefit, and you’re not gonna buy it.

This seems super obvious, but what it does is it allows you to simplify your decision making process. And economists have adapted this same principle to work in tons of different scenarios, using that simple formula to solve complex problems.

If you know someone who likes business but wants a fun way to learn it, send them this.

And if that person’s you, I think you just found your people.