Uncommon Grounds

Estranged, the perfect word to describe the feeling I have to the title of this post and by extension this post itself, which is similar to being in uncommon grounds no? Sometimes life hands you a palette that is devoid of color leaving in its wake shades of Grey (not 50 in this case E.L. James wouldn’t be too happy now would she?) Grey in its many hues (enough of the shades) is a subtle color that projects quiet reflection and repose; it is neither cheerful nor invigorating (more like Christian Grey I would say). We all wish for a scenario were the palettes presented to us are a dynamic mixture of brights and novel neutrals that create a harmonious balance with an overall undertone of pragmatism and versatility. This is sadly not the case and if it were, life would not be as interesting.

A Shade of Grey

The beauty of economics is the ability to construct simple models of how the markets work: the interplay of demand and supply to determine price. These models may be used outside conventional “economic issues” unless the models of course are old or really ugly. These are applicable in everyday life. There is a strong desire within each one of us to be right, think right and act right. In economics, the real cost of anything, be it a service or a physical good, is what is foregone in order to get that thing. However, this comes at a cost; either implicit or explicit commonly called the opportunity cost. However, of concern to most people and indeed economists at large is the value of other opportunities or goods that one has to pass up so as to acquire that good or perform that activity. The biggest opportunity cost that people have to grapple with is how to spend their time. Most people employ their labor skills for a consideration usually in the form of wages. In the market place, as Adam Smith contends,

‘labor is the measure of the exchangeable value of all commodities’

We all wish to spend most of our time comfortably relaxing on the couch. The opportunity cost of relaxing is that we would then lose money. Over varying ranges of wage, we spend most of our time working.

The object of all life is development. Everything has an inalienable right to all the development it is capable of attaining.

We always seek to develop in our day to day lives. However, the fact that we have to give up certain things in order to develop sucks the color from the palettes in our lives. How then does the constant employment of the principle of opportunity costs lead to irrational behavior? Human beings are always on the prowl for relationships and activities that maximize their happiness. Human beings tailor their interactions to maximize happiness. However, the choice that guarantees the greatest happiness is not always the best choice economically. Given that human beings are driven by emotion, the choice therefore leans towards that which maximizes happiness as opposed to that which is the best economically thus the irrational behavior.

These are the uncommon grounds that we often find ourselves in. In the financial markets, decision making can lead to several outcomes: an unchanged position, a large profit, a large loss, a small profit or even a small loss. The aim in the markets is to minimize risk in order to secure the greatest profits. However, sometimes we take on unnecessary risk by focus only on the reward. Being handed a palette devoid of color is akin to getting a large loss. Therefore, in everyday life, depending on the situation, sometimes the choice that gives you the most happiness is the best, at other times it simply isn’t. Just as there are bear runs or bull runs in the market, life has its fare share of good times or bad times. The bottom line is that it does get better……