Economist Discover Miracle Hangover: Drink Less

“Economist discovers miracle hangover: drink less” article introduces a new method to cure a hangover by economics. Jessica Irvine provides an example of Chris, how he makes a decision between drinking another schooner or going back home by comparing the opportunity cost and marginal benefits and assume that what will happen if economists ruled the world.

The basic assumptions that economists make when building their models mentioned in the article “Economists discover miracle hangover cure: drink less” are people face trade-offs, the opportunity cost, and rational people think at the margin. Gans et al. state that “there’s no such thing as a free lunch. Here we face a dilemma because to get something that we like, we usually have to give up something else that we also like. Making decisions requires trading off one goal against another”. In other words, facing trade-offs means that we need to make decision between two or more things by taking one of the options and discarding the other options. Acknowledging trade-offs is important because people tend to make a good decision only if they are aware of the options offered. The second assumption is opportunity cost, which can be described as “the value of the next highest valued alternative use of that resource foregone because of the action, as such the opportunity cost concept is inseparable from the concepts of value and action”. The opportunity cost of a particular action may not be a sight at first, thus it is important to analyze the costs and benefits of alternative courses of action. The third assumption is rational people think at the margin, which comprises of two criteria, rational people and margin. Borland defines rational people as “a rational decision-maker has a well-defined objective, knows the consequences of alternative actions and chooses actions that are consistent with achieving the objective (or, in other words, chooses the action that maximizes wellbeing) rather than thinking emotionally. In addition, Gans states margin or marginal change as “a small incremental or decremental adjustment to an existing plan of action”. Therefore, rational people will basically make decisions by comparing the marginal cost and marginal benefits if the marginal benefit exceeds the marginal cost then action would be taken on the particular decision. It is important that people use these models developed by economists, because to make decisions one must consider the trade-offs of the alternative options, the opportunity cost, and its marginal benefit in order to maximize their satisfaction.

Referring to the article “Economists discover miracle hangover cure: drink less”, Chris’s opportunity costs of going home to play PlayStation are the price of consuming another beer, as well as its pleasurable experience of having another glass of beer. Jessica, the journalist of the article, argues that hangovers are only possible because ordinary humans often do not fit the model of rational individuals prescribed by economists. The first reason is because it is not always possible to know the consequences of every action beforehand. Anyone who has ever drunk on an empty stomach, knows that the consequences of drinking alcohol can vary from the person who has not drunk alcohol empty stomach to a person who has never drunk. Second, humans are not good at factoring in opportunity costs because emotions play a big role in decision-making. They think about things in a simplistic way rather than thinking of all the available opportunities. Finally, people rarely make decisions in a calculated way. For some people, addiction overrides careful consideration. In addition, most people tend to act collectively as a part of a group. In my opinion, I do not think this is necessarily true. As described earlier, rational people are consistent with achieving objectives or maximizing well-being but also knowing the consequences of alternative actions. It does not mean hangovers are possible because humans do not fit the model of rational individuals. Some people choose to drink more beers because they feel like their well-being is maximized by doing so, for example, the pleasurable experience of having another beer. Having different objectives or maximized well-being does not make people irrational. However, it is important to acknowledge that to make a decision one must consider the trade-offs, the opportunity costs that occur, and the marginal exchange between alternatives available (whether benefits or costs), in order to maximize their wellbeing and achieve their objective.

Rational people choose between alternatives by doing the best they can to achieve their objective systematically and purposefully of the opportunities or alternatives available. They explain changes in choices by comparing the marginal benefits and marginal costs between the options or alternatives presented. People will make decisions if the particular option is beneficial to them (marginal benefits exceed marginal costs). This illustration can be found in the article when Chris decided not to have another glass of beer. Before deciding, Chris weighed his options available whether to continue drinking or to stop. He compared the benefits and costs for having another drink where his benefit was playing PlayStation and to catalog his stamps and cost was the hangover and sick feeling. Chris is rational because the decision taken is well considered and he is aware of the consequences of alternative actions. This illustration indicates that in order to be rational, people need to consider the effect (benefits and costs) of one option versus another option to achieve the objective and maximize wellbeing.

I agree that the article is a case of it might work in theory, but it does not work in practice. In a certain situation, it is difficult to think rationally, for example when someone’s waiting for our decision impatiently. Additionally, emotions play a part in a decision-making process rather than logic. Thus, making it harder for people to be rational and efficient.

References

1. Borland, J. (2016). Microeconomics: case studies and applications (3rd ed.). South
2. Melbourne, Victoria: Cengage Learning Australia
3. Gans, J., King, S., Stonecash, R., Byford, M., Libich, J. & Mankiw, G. (2018).
4. Principles of economics Asia- Pacific edition (7th ed.). South Melbourne, VIC:
5. Cengage Australia.
6. McCaffrey, M. (Ed.). (2018). The economic theory of costs: foundations and new
7. directions. Retrieved from https://ebookcentral-proquest-com.ezproxy.lib.
8. monash.edu.au/lib/monash/detail.action?docID=5015635