IshaanBilala
Banned
Cost-benefit analysis is a logical way of making decisions based upon the probable outcomes of various courses of action. A cost-benefit analysis can be divided into five steps:
1. Specify the possible options for action. These must be mutually exclusive; that is it must be impossible to choose more than one.
2. List all the possible outcomes (i.e. sets of consequences) for each option. The outcomes on this list must be mutually exclusive and exhaustive. The list of outcomes is mutually exclusive if the outcomes cannot overlap (that is, no more than one of them can occur), and it is exhaustive if it includes everything that can happen (that is, the list is so complete that at least one of the outcomes on it must occur).
3. Determine the probability of each outcome of each option.
4. Assign a value (positive or negative) to each outcome of each option.
5. The sum of the values times probabilities for each option is the expected value of that option. Select the option (or, in case of a tie, any one of the options) that maximizes expected value.
It is instructive to compare cost-benefit analysis with sort of simple consequentialist reasoning discussed in the previous section. Recall that this simple consequentialist reasoning also consists of five parts:
1. A listing of all the possible options for action
2. A listing of all the important consequences of each option
3. A judgment concerning which set of consequences is best (or least bad)
4. An assertion of the principle that we should choose the option with the best (or least bad) consequences
5. The conclusion
These, however, do not correspond point-for-point to the five steps mentioned above. The first item in each list is essentially the same. But in the simple consequentialist reasoning discussed in the previous section, each option for action is assumed to lead with certainty to a given outcome (which may consist of several different consequences, both positive and negative). In cost-benefit analysis there may be several different outcomes (each perhaps likewise consisting of a variety of consequences). These we list in step 2 of the cost-benefit analysis. Since which of these possible outcomes will occur is uncertain, we can at best assign to each a probability (step 3 of the cost-benefit analysis). Another difference between simple consequentialist reasoning and cost-benefit analysis is that in the latter we do not merely list and judge the consequences; rather, we assign to the complete set of consequences for each outcome a number that represents its total value (step 4). The conclusion is then drawn, not by logical inference, but by numerical calculation (step 5).
1. Specify the possible options for action. These must be mutually exclusive; that is it must be impossible to choose more than one.
2. List all the possible outcomes (i.e. sets of consequences) for each option. The outcomes on this list must be mutually exclusive and exhaustive. The list of outcomes is mutually exclusive if the outcomes cannot overlap (that is, no more than one of them can occur), and it is exhaustive if it includes everything that can happen (that is, the list is so complete that at least one of the outcomes on it must occur).
3. Determine the probability of each outcome of each option.
4. Assign a value (positive or negative) to each outcome of each option.
5. The sum of the values times probabilities for each option is the expected value of that option. Select the option (or, in case of a tie, any one of the options) that maximizes expected value.
It is instructive to compare cost-benefit analysis with sort of simple consequentialist reasoning discussed in the previous section. Recall that this simple consequentialist reasoning also consists of five parts:
1. A listing of all the possible options for action
2. A listing of all the important consequences of each option
3. A judgment concerning which set of consequences is best (or least bad)
4. An assertion of the principle that we should choose the option with the best (or least bad) consequences
5. The conclusion
These, however, do not correspond point-for-point to the five steps mentioned above. The first item in each list is essentially the same. But in the simple consequentialist reasoning discussed in the previous section, each option for action is assumed to lead with certainty to a given outcome (which may consist of several different consequences, both positive and negative). In cost-benefit analysis there may be several different outcomes (each perhaps likewise consisting of a variety of consequences). These we list in step 2 of the cost-benefit analysis. Since which of these possible outcomes will occur is uncertain, we can at best assign to each a probability (step 3 of the cost-benefit analysis). Another difference between simple consequentialist reasoning and cost-benefit analysis is that in the latter we do not merely list and judge the consequences; rather, we assign to the complete set of consequences for each outcome a number that represents its total value (step 4). The conclusion is then drawn, not by logical inference, but by numerical calculation (step 5).