Avoid the "Marginal Costs" mistake


We’re taught in finance and economics that in evaluating alternative investments, we should ignore sunk and fixed costs and instead base decisions on the marginal costs and marginal revenues that each alternative entails.
We learn in our course that this doctrine biases companies to leverage, what they have put in place to succeed in the past, instead of guiding them to create the capabilities they’ll need in the future. If we knew the future would be exactly the same as the past, that approach would be fine. But if the future’s different—and it almost always is—then it’s the wrong thing to do.
This theory addresses the third question I discuss with my students—how to live a life of integrity (stay out of jail). Unconsciously, we often employ the marginal cost doctrine in our personal lives when we choose between right and wrong. A voice in our head says, “Look, I know that as a general rule, most people shouldn’t do this. But in this particular extenuating circumstance, just this once, it’s OK.”
The marginal cost of doing something wrong “just this once” always seems alluringly low. It sucks you in and you don’t ever look at where that path is ultimately headed and at what  cost the choice comes.
Justification for infidelity and dishonesty in all their manifestations lies in the marginal cost economics of “just this once”.
I’d like to share a story about how I came to understand the potential damage of “just this once” in life. A friend of mine, Thomas, played in the school soccer team. They worked their tails off and finished the season undefeated. The guys on the team were the best friends I’ve ever had in my life.
They got to the High Schools provincial tournament—and made it to the final four. It turned out the championship game was scheduled to be played on a Sunday. Thomas had made a personal commitment to God at the age of 16 that he would never play soccer on Sundays. So he went to the coach and explained his problem. He was incredulous. The teammates were too because he was the in the starting 11. They came to him and said, “You’ve got to play. Can’t you break the rule just this once?”
He was a deeply religious man, so he went away and prayed about what he should do. He told us that he got a very clear feeling that he shouldn’t break his commitment—so he didn’t play in the championship game.
In many ways, that was a small decision—involving one of several thousand Sundays in his life. In theory, surely he could have crossed over the line just that once and not done it again. But looking back now, resisting the temptation whose logic was “In this extenuating circumstance, just this once, it’s OK” has proven to be one of the most important decisions. Why? My life has been one unending stream of extenuating circumstances. Had one crossed the line that once, then they would have done it over and over again in the years that followed.
The lesson I learned from this is that it’s easier to hold on to your principles 100% of the time than it is to hold on to them 98% of the time. If you give in to “just this once,” based on a marginal cost analysis, as some of my former classmates have done, you’ll regret where you end up.
You’ve got to define for yourself what it is you stand for and draw the line in a safe place.