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Actions are always taken on the basis of circumstances and conditions, and these factors can receive different names, such as: - opportunity cost - benefit to cost ratio - entropy - entropy rate - payback period. The last one is measured in time. To make a good decision, we must consider the effects and benefits of taking a particular action; we need to know about opportunities cost, benefit to cost ratio, and the action efficiency (payback period). In this article learn about these factors that can affect your decision making when it comes to your savings or investment. - Opportunity cost is the value of the best alternative use of your time, effort, or money. The opportunity cost of any action is the next-best thing you give up when you take that action. For example, if you work at a coffee shop, the opportunity cost of working at that coffee shop is what else you could have done with that time. If you stay home and watch TV all day, the opportunity cost is what else you could have done with that time. If you go to college, the opportunity cost is what else you could have done with that money. The trick here is to realize that there are always opportunities available in life for either earning or learning or taking risks. - Benefit to cost ratio is the value of the immediate benefits you receive from taking a particular action. It is useful for making quick decisions. It can be measured as: Benefits - Costs. For example, if I’m going on a vacation, I can go to a park, eat something tasty and relax. That’s the benefit of going on that vacation or at least it will satisfy my needs or needs that I have pending that time. Here the benefits are equal to money which is used for traveling and eating food. Therefore this action has a benefit to cost ratio of 1/2= 0. 5. - The action efficiency (payback period) is the amount of time it takes for the benefits to you equal the costs that you pay. This is also called the return on investment, ROI. The formula is: costs/benefits. For example, if I’m going to college, I need to pay tuition fees and study for exams, so my action has a cost of $1.000 and after 4 years I will earn $1.500 per month so my action efficiency will be 1/500= 0.2%. - Entropy is a measure of disorder, or randomness. It is a concept that comes from science and statistics. In physics, entropy is the measure of the randomness in a system. If a dice rolls, it lands on 1, 2, 3 or 4 with probability 1/6 for each number so the entropy of this process is 1/6. In statistical thermodynamics entropy indicates how much “mixed” a system is. A mixed system has less entropy than an unmixed one. For example, if you mix blue and yellow paint together in a barrel then you have more mixed paint than if you put them in different barrels. cfa1e77820
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