No. 3 · Decisions · Economics
Cost-Benefit Analysis
Count everything a choice will cost and everything it will give, not just what is easy to see.
In the Almanac
“Dupuit’s bridge”, 1844 · “Hertz”, 2021–2024
Both stories in full, three ways to use it and where it misleads.
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Questions
What is Cost-Benefit Analysis?
Cost-Benefit Analysis lists the costs and benefits of a decision in comparable terms and asks whether the gains outweigh the price. The tricky part is spotting hidden items, like repairs and resale value, or benefits to people who never pay you.
How do you use Cost-Benefit Analysis?
Use it before big purchases, projects or commitments: write both columns, put rough numbers on each, and include what's easy to forget. Just remember some values resist numbers, and estimates can be wrong.
When does Cost-Benefit Analysis matter?
Cost-Benefit Analysis is one of the 35 mental models for decisions, the situations where you ask: Which way should I go? Within that, it belongs to “Weighing the options”, alongside A/B Testing, Back-of-the-Envelope Calculation and Decision Tree.
What is an example of Cost-Benefit Analysis?
Two stories show it at work: Dupuit’s bridge (1844) and Hertz (2021–2024). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Cost-Benefit Analysis?
Opportunity Costs, Utilitarianism and Law of Unintended Consequences. Cost-Benefit Analysis itself comes from economics.