Upfront Costs

Notes

Upfront costs can be a form of Friction. When an initial cost of something is so high it can prevents us from changing into a more optimal position. For example, Path Dependence is often characterized by high upfront costs. Perhaps switching from qwerty to a different keyboard layout would benefit us all, by the first moment of switching is very difficult to do. High upfront costs can something push you into a Negative cycle, because the costs of getting out of it are so high perhaps too much to bear, you are forced of suffering an endless stream of tiny pains over and over again. It incentivizes us to maintain the status quo, even when it's overall the worst possible outcome.

The costs seem even higher the more we are biased towards our present self. Why should I work hard now just so that "future me" can reap the benefits? The upfront costs are visible, while any future benefit is uncertain.

However, the very idea of compounding relies on the fact that many investments that seem difficult or even irrelevant in the present, have great effect in the future, the more time we allow it to develop. Therefore, upfront costs should always be paid as soon as possible, so that the compounding effect would be the greatest.

Visual

Overview

🔼Topic:: Economics (MOC) 🔼Topic:: Friction ↩️Origin:: 🔗Link::