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Externalities: Why We Can Never Do "One Thing"
Luxury Goods
Status symbols like diamonds, Lamborghinis, tailor-made suits lose their value if they become cheaper or if too many people own them. They derive their value only in comparison to the average of the group to whom the consumer compares.
The same is true when we change our attitudes.
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Key Ideas
Externalities
An externality affects someone without them agreeing to it. It can be positive or negative. Most externalities are small but can make a significant impact over time. Understanding the types of externalities and the consequences they have can help us improve our decision making.
One family member leaves their dirty dishes in the sink. They get the benefit of using the plate. Someone else bears the cost of washing it later.
The First Law of Ecology
We can never do one thing. We should consider what the second-order consequences will be. When we interact with a system, we need to find out what the broader repercussions of our actions will be.
Negative Externalities
They can occur during the production or consumption of a service or goods. Calling something a negative externality can be a way of avoiding responsibility.
If a factory pollutes nearby water supplies, it causes harm without added costs to the factory. The costs to society are high and are not reflected in the price of whatever the factory produces. Even if pollution is taxed, the harmful effects still remain.
Positive Externalities
A positive externality imposes an unexpected benefit on a third party. The producer doesn't agree to this, nor do they receive a 'reward' for it.
- Scientific research can have applications beyond their initial scope.
- Blaise Pascal and Pierre de Fermat developed probability theory to solve a gambling dispute. Probabilities are now a core part of how we think.
Positive Externalities Issues
- Someone who comes up with a solution cannot expect compensation each time the solution gets used. It results in reduced incentives to invest time and effort to discover new solutions. Algorithms, patents, and copyright laws try to solve this dilemma by allowing creators to profit from their ideas for years.
- The "free-rider" problem: When we enjoy something that we aren't paying for, we tend not to value it. A large portion of online content succumbs to the free-rider problem.
Positional Externalities
They are a form of second-order effects. They arise when our decisions change the context of future perception or value.
A person decides to stay an hour after work, but the person still completes the usual amount of work. Co-workers might also stay an hour later. Now the same job takes an hour longer to complete, and anyone who leaves the standard time is perceived as lazy. It is a lose-lose situation.
Luxury Goods
Status symbols like diamonds, Lamborghinis, tailor-made suits lose their value if they become cheaper or if too many people own them. They derive their value only in comparison to the average of the group to whom the consumer compares.
The same is true when we change our attitudes.
Consider your Externalities
Externalities are everywhere. It's easy to disregard the impact of our decisions - to stay late at the office or to drop litter. We run the risk of paying a price if we do not mind our actions.
Keep in mind to always ask: and then what?
SIMILAR ARTICLES & IDEAS:
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Key Ideas
Risk Compensation
Risk protection is normally done to minimize the harm a particular activity can do to us. There are various things we do to reduce our risk, to make ourselves safer.
Behaviour scientists po...
Risk Compensation Effects
- When automobile safety laws were introduced, the drivers started taking more risks while driving, leading to more pedestrian accidents.
- Children (and even adults) take more physical risks while playing a sport with protective gear.
- Safety features like Anti-lock brakes in vehicles ended up increasing the accidents for taxi drivers in Germany
- Child-proof caps on medicine bottles made parents careless about their being opened by kids, including the ones which don’t have the safety feature.
The Carelessness Effect
Having a safety device in place, and armed with the knowledge that we can push the envelope a bit, the appetite for risk increases.
- People who have an emergency fund in place tend to be less careful about their investments.
- People wearing a face-mask in this global pandemic feel like they are safer in crowded places (It’s a face mask, not an Iron Man suit).
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4 different types of difficult people
- The Downers (the Negative Nancys): almost impossible to please, they always have something bad to say. They complain, critique and judge.
- The Know It Alls: The...
Disengaging difficult personalities
Don't try changing people, try understanding them.
When you try to change someone they tend to resent you, dig in their heels, and get worse. The way to disengage a difficult person is to try understanding where they are coming from.
Finding The Value Language
When trying to understand difficult people, search for their value language.
A value language is what someone values most. It is what drives their decisions. For some people it is money; for others, it is power or knowledge.
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The Caffeinated and the Un-caffeinated
Morning commuters seem to fall into one of two categories:
- the Caffeinated: ready to take on the day—they're reading their morning papers, or checking email, or reading for plea...
Grown Ups and Coffee
By 1988 only 50 percent of the adult American population drank coffee. In 1962, average coffee consumption was 3.12 cups per day; by 1991 had dropped to 1.75 cups per day.
At the onset of the 1980s, coffee growers and retailers realized that the current 20-29-year-old generation had little interest in coffee, which they associated with their parents and grandparents.
Coffee And the "Me" Generation
For the coffee industry to survive, it needed a new marketing strategy. The consumer was changing and coffee-players needed to pay attention.
Crucial questions the 'me' generation will ask: "What's in it for me? Is the product 'me'? Is it consistent with my lifestyle? Do I like how it tastes? What will it cost me? Is it convenient to prepare?"
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A network is more than just a group of individuals
In addition, a network has ties between people.
The connections between individuals are what changes a group to a network.
Social networks have a strong effect on our ideas
You may think it was your idea to keep your desk neat or speak up in a meeting, but your behavior was likely influenced by those in your network.
Once we understand social networks, we can use its power to shape workplaces for the better. You can turn an unhappy team into an innovative, collaborative one.
We naturally copy others
Your experiences in the world is not only a product of your own desires, actions, and thoughts, but also a product of the desires, actions, and thoughts of people around you.
The things that are seemingly personal to you are actually very strongly influenced by similar traits in other people. You do have agency. You can choose what to do. But you're also affected by what others are doing. Both are true.
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You can decide to do something without ever getting excited about it
You could choose to do something because it will:
- Lower your anxiety.
- Benefit someone who you care about.
- Lead to financial gain.
- Avoid a negative conseque...
When you have a low drive to move forward:
- Put a low-frequency activity ahead of a high-frequency activity.
- Give yourself a standard time and honor it: Block time for important activities.
- Limit the time commitment: Work for 10 minutes a day on this task and then you can stop if you want to.
- Set the bar low: Take just one action step a week on this activity.
- Get ‘er done. If you want to get this entirely off your plate, set aside a whole day to complete the task.
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Change the setting sometimes
Occasionally, go for a walk and have your 1:1. Occasionally, go get coffee. Go sit in the courtyard. Get lunch or breakfast or dinner. Most often, it’s probably easiest and most efficient to...
It's ok to cancel
If there’s nothing to discuss, it’s ok to cancel. People, too often, view 1:1s as mandatory, but it’s refreshing when you both acknowledge that things are ok for now, or the time may be better spent other ways.
Let the employee own the agenda
It is a simple, symbolic practice that helps them feel ownership and autonomy for their work and their time.
You’re saying, “You tell me what’s important,” and of course you can coach and guide them to help refine over time what’s important.
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Key Ideas
Read 1 book per week
Ordinary people seek entertainment. Extraordinary people seek education and learning.
Taking even 15–30 minutes every day (especially during the morning) to read uplifting and instruct...
Do something that terrifies you
But you don’t have to constantly be battling your fears. You only need to be courageous for 20 seconds at a time.
If you courageously confront fear for 20 seconds every single day, before you know it, you’ll be in a different socio-economic and social situation.
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The silver lining of tragedies
In our culture, there's this idea that going through a disaster can be good for you and make you stronger.
After experiencing loss or trauma, people usually report feeling a greater apprec...
Post-traumatic growth
The narrative of growth from adversity might sound convincing, but it's difficult to collect reliable data on people before and after they've experienced trauma.
Studies found that people are not very good at accurately remembering what they were like before a traumatic event. When they think they have experienced growth, it might just be a coping mechanism. Those who reported personal growth after a tragedy were more likely to continue to experience symptoms of post-traumatic stress.
People can grow from adversity
It can be problematic to embrace the idea that personal growth and resilience are typical outcomes of adversity.
Not everyone is stronger after a traumatic event. However, the support of family, friends, and communities in the wake of a traumatic event, plays a significant role in growing from it.
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Life Is Cyclical
Life can be described in just three words: Up and Down. We mistakenly expect life to be consistently Up.
Life, along with all the natural human processes are cy...
The Ongoing Cycles Surrounding Us
Everywhere around us, whether it's stock markets, the weather, and life in general, we are constantly subjected to ongoing cycles.
In Businesses, it helps to know the state of the industry, the number of years in business, product acceptance, and current trends.
In careers, we can be aware of our network strength, experience, emerging innovations, and skill relevance.
With regards to our energy, we can be aware of how we are feeling, what is our current lifestyle, our food intake, and the current season.
Use Cycles to Make Your Decisions
Understanding that we are in a cycle helps us make better decisions.
As nothing in life is static, with change being the only consistent attribute, we must respect the cyclic nature of everything, and if we are aware where we are in the up and down motion, we can make better decisions.
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Key Ideas
The power of caffeine
Scientists determined that a person who is more sensitive to the bitter taste of caffeine drinks more coffee.
The stimulating effects of caffeine on the brain act as a kind of positive rein...
Genes and coffee
More research is needed to validate whether there is a causal link between genes and specific taste perceptions.
Scientists are planning to delve further into the relationship between taste perception and health - to evaluate if bitter taste genes have implications on disease risks.