There Ain't No Such Thing as a Free Lunch (TANSTAAFL)

What Is There Ain't No Such Thing as a Free Lunch (TANSTAAFL)?

"A free lunch" (TANSTAAFL), otherwise called "a free lunch" (TINSTAAFL), is an articulation that depicts the cost of navigation and consumption can't exist can't really exist. The articulation conveys that things showing up free consistently have some cost paid by someone, or that nothing in life is really free.

A free lunch alludes to a situation where there is no cost incurred by the individual getting the goods or services being given, yet financial specialists point out that even in the event that something were genuinely free there is an opportunity cost in what isn't taken.

How TANSTAAFL Works

The TANSTAAFL concept is important to consider while settling on different types of choices, whether they be financial or lifestyle. The concept can assist consumers with settling on more astute choices by thinking about all indirect and direct costs and externalities.

In economics, TANSTAAFL portrays the concept of opportunity costs, which states that for each decision made, there is an alternative not picked which would likewise have created some utility. Direction requires compromises and accepts that there are no real free offerings in society. For instance, products and services gifted (free) to individuals are paid for by the person giving the gift. Even when there is nobody to accept the direct costs, society bears the burden, as on account of negative externalities like pollution.

Investors must remain particularly careful about an apparently free lunch while dealing with investments that guarantee a surge of genuinely high, fixed payments over a period of several years with evidently low risk. A large number of these investments stay laden with hidden fees, some of which may not be completely perceived by investors. By and large, any investment that guarantees a guaranteed return is certainly not a free lunch since there is some implicit cost some place, including the opportunity cost of not investing somewhere else.

There is additionally the implicit cost related to concealed risks. A few financiers vigorously showcased mortgage-backed securities (MBS) as an apparent free lunch in the mid 2000s. These investments were portrayed as being exceptionally safe, AAA-rated investments, backed by a diversified pool of mortgages. Nonetheless, the housing crisis in the U.S. uncovered the true underlying risk of these investments, as well as a defective ratings system that classified pools of loans as AAA, even when a large number of the underlying loans carried extremely substantial default risks.

Even products and services given to individuals for free are not genuinely free; a company, government, or individual at last pays the cost.

History of the TANSTAAFL Concept

The concept of TANSTAAFL is remembered to have originated in nineteenth century American cantinas where customers were given free snacks with the purchase of beverages. From the essential structure of the offer, it is obvious that there is an implicit cost associated with the free lunch: the purchase of a beverage.

In any case, there are extra concealed [costs](/working cost) coming about because of the consumption of the free lunch. Since the snacks were high in salt, customers were tempted to purchase more beverages. So the cantinas deliberately offered free snacks with the expectation that they would produce sufficient revenue in extra beverages to offset the cost of the lunch. The proposal of a free decent or service with the purchase of another great or service is an oxymoronic strategy numerous organizations actually use to tempt customers.

TANSTAAFL has been referred to commonly generally in a wide range of settings. For instance, in 1933, former New York City chairman Fiorello H. La Guardia utilized the Italian phrase "\u00e8 finita la cuccagna!" (translating to "not any more free lunch") in that frame of mind against crime and corruption. Popular references to the phrase can likewise be found in Robert Heinlein's "The Moon Is a Harsh Mistress" as well as in Milton Friedman book "a Free Lunch can't really exist."

Instances of TANSTAAFL

Across various disciplines (e.g., economics, finance, statistics, and so on), TANSTAAFL has various undertones. For instance, in science, it alludes to the theory that the universe is a closed system. The thought is that a source of something (e.g., matter) comes from a resource that will be exhausted. The cost of the supply of issue is the exhaustion of its source.

In sports, TANSTAAFL was utilized to depict the wellbeing costs associated with being great at a game, similar to "no pain, no gain." Despite the various implications, the common factor is cost.

For investments, TANSTAAFL assists with explaining risk. Treasury bills (T-bill), notes, and bonds offer an almost risk-free return; notwithstanding, the opportunity cost of investing in one of these instruments is the foregone opportunity to invest in an alternative, riskier investment. As an investor moves higher on the risk range, the phrase TANSTAAFL turns out to be even more pertinent as investors give capital any desires for achieving larger gains than what less-riskier securities yield; nonetheless, this decision accepts the cost that growth possibilities may not be accomplished and the investment could be lost.

Highlights

• "A free lunch" (TANSTAAFL) is a phrase that depicts the cost of independent direction and consumption can't exist.
• In investing, buying Treasury bills is an illustration of somebody thinking they are getting a reasonable setup for practically nothing. Yet, the tradeoff in buying Treasuries is the opportunity cost of not being invested in higher-risk, higher-reward securities after some time.
• TANSTAAFL proposes that things that seem, by all accounts, to be free will continuously have a hidden or implicit cost to somebody, even on the off chance that it isn't the individual getting the benefit.