do trade-offs always exist?

Trade-offs are not a fundamental law of decision-making.

I read a great article by

Nicholas Gruen

that explores how economics is often framed as the study of trade-offs (e.g. cost vs. quality). The idea that trade-offs are axiomatic is so central to economic thinking that it's rarely questioned. A consequence of assuming trade-offs are always necessary is that better solutions may be hidden.

The article gives the example of Toyota disproving the assumed trade-off between cost and quality by designing production systems that got things right first time (which resulted in improving quality and cutting costs) while traditional manufacturers focused on fixing errors after the fact (which was more expensive and less effective).

The idea of trade-offs being assumed might also permeate all decision-making thinking.

It is not a fundamental law of decision-making that any set of features are axiomatically trading off against each other.¹ It is rarely a simple sliding scale. I think for most decisions there are a whole plethora of various features that are trading off in a much more intertwined way.²

Any time you find yourself thinking about the trade-off between any two/three things, it might be good process to generate the habit: always question whether a supposed trade-off actually exists. Try not to get locked into binary thinking, there often might be another option (or even a different trade-off that could be made).

Some practical ways to beat the trade-off trap:

• Scenario Simulation: try to actively pursue scenarios that break the asumption of a trade-off. You could do this by employing ‘constraint relaxation’³, which is basically asking what would you do if you could not fail. Sometimes a solution found in an idealised scenario can help you work out better solutions to the real life problem at hand.

• Free Rolls: A helpful proxy might also be found in linking this to the idea of free rolls. Free rolls are a decision with potential upside but no downside.⁴⁵ You don’t need to know the upside of a decision, you just need to know that the downside is virtually zero. I think we generally resist the idea that there can be no downsides as it seems too good to be true. These are by definition not a trade-off.

1. It is accepted that we can’t have everything, there is always some sort of trade-off. The focus here is on trade-offs of two/three features, which is how it often manifests in everyday life.

2. Common example features: Time / Cost / Quality / Convenience

3. Inspiration from Algorithms to Live By: The Computer Science of Human Decisions 1 by Christian, Brian, Griffiths, Tom (ISBN: 9780007547999)

4. Duke, Annie and Sunstein, Cass R., Freerolls (July 22, 2020). Available at SSRN: https://ssrn.com/abstract=3658663 or http://dx.doi.org/10.2139/ssrn.3658663.

5. Example: Making an offer on a house below asking price. If it is accepted then you have a great deal. What is the worst that can happen if rejected? The seller might get so offended that they refuse to deal with you again? Seems unlikely. Sometimes this is just a result of not using Expected Value properly. The mere ‘theoretical existence’ of a downside doesn’t mean it is material.