The entries here combine a handful of economic rules for making decisions with a longer list of paradoxes and sayings. The rules are the discipline's advice to anyone choosing under scarcity. The paradoxes are the places where its own theories predicted wrongly, and most of them are more instructive than the rules.
Rules for choosing
Opportunity Cost is the foundation: the true cost of any choice is the best alternative it gives up. The Kelly Criterion turns that into a formula for how much to stake when the odds are in your favour, and the Tinbergen Rule warns policymakers that each target needs its own instrument. Caveat Emptor, the oldest rule in the group, puts the burden of inspection on the buyer where the seller knows more.
Two precepts define what economists mean by an improvement, and the difference between them matters. Pareto Efficiency counts a change as better only if nobody is made worse off. Kaldor–Hicks Efficiency counts it as better if the winners could compensate the losers, whether or not they do. Most cost-benefit analysis in government uses the second standard, which is why losers from an efficient policy are often left uncompensated.
Paradoxes that forced revisions
The paradoxes are anomalies that the theory of their day could not absorb. The Leontief Paradox found the capital-rich United States exporting labour-intensive goods. The Lucas Paradox asked why capital does not flow to poor countries. The Equity Premium Puzzle found shares paying far more than any plausible risk aversion explains, and the Productivity Paradox found computers everywhere except in the statistics. The Easterlin Paradox questioned whether growth raises happiness at all. Each produced a literature of explanations, and several remain open.
When efficiency backfires
A second set of paradoxes concerns improvements that defeat themselves. Jevons's Paradox found more efficient steam engines raising total coal use. The Downs–Thomson Paradox finds road speeds set by the public transport alternative, so road building alone does not speed journeys. The Cobra Effect shows a bounty creating the problem it paid to remove. The Tragedy of the Anticommons reverses the commons: when too many parties can veto a use, resources sit idle. Berra's Congestion Paradox puts it more memorably: nobody goes there any more, it is too crowded.
Sayings
The sayings are compact and some are partisan. Stein's Law, that something which cannot go on forever will stop, is a sober rule for reading any trend. No Such Thing as a Free Lunch restates opportunity cost. Thatcher's line about other people's money is a political argument in the form of a joke, and the ledger files it with the evidence both for and against it.
Where it applies
The precepts are everyday tools: opportunity cost for any budget, Kelly for investors and gamblers, Tinbergen for anyone designing a policy that tries to do two things at once. The backfire paradoxes are essential in environmental and transport policy, where efficiency gains are routinely expected to cut consumption and routinely do less than expected. The anticommons explains stalled drug development and housing schemes held up by too many permissions.
Where it is argued over
The Kaldor–Hicks standard is criticised for counting compensation that is never paid. The Pareto Principle is quoted as though eighty and twenty were constants. Several paradoxes have proposed resolutions that are themselves disputed: the Easterlin paradox is contested on newer data, and the productivity paradox has reappeared with each new technology.
Why it is worth knowing
The rules teach how to choose when resources are limited, which is always. The paradoxes teach something rarer: humility about the models in the previous essay. Each paradox was once a confident prediction that failed, and the habit of asking where a good theory might be wrong is the most transferable lesson economics has to offer.
The entries behind this essay: Precept and Figure in Economics & Incentives. Every subject has its essays on the essays page.