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Ever feel like you're missing out on something? Well, you are. As American novelist F. Scott Fitzgerald put it: "Our lives a ... Lorem ipsum dolor sit amet, consectetur adipiscing elit. Illum mallem levares, quo optimum atque humanissimum virum, Cn. Vos autem cum perspicuis dubia debeatis illustrare, dubiis perspicua conamini tollere. Amicitiam autem adhibendam esse censent, quia sit ex eo genere, quae prosunt. Duo Reges: constructio interrete. Summus dolor plures dies manere non potest? Nulla profecto est, quin suam vim retineat a primo ad extremum. Sed ad haec, nisi molestum est, habeo quae velim. Age nunc isti doceant, vel tu potius quis enim ista melius? Nunc vero a primo quidem mirabiliter occulta natura est nec perspici nec cognosci potest. Aliter homines, aliter philosophos loqui putas oportere? Itaque in rebus minime obscuris non multus est apud eos disserendi labor. Hoc non est positum in nostra actione. Quod totum contra est. Quibusnam praeteritis? Atqui haec patefactio quasi rerum opertarum, cum quid quidque sit aperitur, definitio est. Negare non possum. Odium autem et invidiam facile vitabis.
- Ask: ‘what else could I be doing with this time/money and what would that give me?’
As ...
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sic vester sapiens magno aliquo emolumento commotus cicuta, si opus erit, dimicabit. Ita enim vivunt quidam, ut eorum vita refellatur oratio. Expectoque quid ad id, quod quaerebam, respondeas. Expressa vero in iis aetatibus, quae iam confirmatae sunt. Est enim effectrix multarum et magnarum voluptatum. Quid est igitur, inquit, quod requiras? Aut unde est hoc contritum vetustate proverbium: quicum in tenebris? Duo Reges: constructio interrete. Sunt enim quasi prima elementa naturae, quibus ubertas orationis adhiberi vix potest, nec equidem eam cogito consectari. Nam quibus rebus efficiuntur voluptates, eae non sunt in potestate sapientis. Verum esto: verbum ipsum voluptatis non habet dignitatem, nec nos fortasse intellegimus. Idque testamento cavebit is, qui nobis quasi oraculum ediderit nihil post mortem ad nos pertinere?
Tollenda est atque extrahenda radicitus. Bork Hoc ille tuus non vult omnibusque ex rebus voluptatem quasi mercedem exigit. Ita multo sanguine profuso in laetitia et in victoria est mortuus. Est autem officium, quod ita factum est, ut eius facti probabilis ratio reddi possit. Quod quidem nobis non saepe contingit. Itaque eos id agere, ut a se dolores, morbos, debilitates repellant. Profectus in exilium Tubulus statim nec respondere ausus;
Quid igitur, inquit, eos responsuros putas? Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur. Nec vero sum nescius esse utilitatem in historia, non modo voluptatem. Illis videtur, qui illud non dubitant bonum dicere -;
Opportunity Costs are difficult to calculate, especially when they relate to non-financial considerations. Focusing on Opportunity Costs might also a risk of ‘analysis paralysis’ arising from fear of making the incorrect choice. Finally, assessing Opportunity Costsaccurately is not always practical for every decision, all the time.
Even ‘saving’ has a cost.
Saving money in a bank account with a defined interest rate has an opportunity cost of the lost returns from an alternative venture that you might have invested in.
Benjamin Franklin: ‘Time is money’.
Franklin coined the term ‘time is money’ which can be viewed as another example of opportunity cost. In 1974 he wrote “Remember that Time is Money. He that can earn Ten Shillings a Day by his Labour, and goes abroad, or sits idle one half of that Day, tho’ he spends but Sixpence during his Diversion or Idleness, ought not to reckon That the only Expense; he has really spent or rather thrown away Five Shillings besides.”
What about dinner?
If you are considering buying pizza or asian food for dinner tonight, then finally decide on pizza. The opportunity cost is the asian food that you did not choose.
Opportunity cost is a key mental model in decision making, economics and creating efficiencies.
Use the following examples of connected and complementary models to weave opportunity cost into your broader latticework of mental models. Alternatively, discover your own connections by exploring the category list above.
Connected models:
- Sunk cost fallacy: when considering past decisions and ‘cutting losses’ moving forward.
- Cost-benefit analysis: in deciding on a course of action.
- BATNA: in considering the best alternative.
- Second order thinking: considering the implications beyond the immediate.
- A/B testing: to weigh up potential opportunity costs.
- Regret minimisation framework: a decision process that imagines the long term opportunity cost of inaction.
- TANSTAAFL: linked to ‘There ain't no such thing as a free lunch’ mental model
Complementary models:
- Compounding: considering the opportunity cost of small consistent investments over extended periods of time.
- Inversion: considering the cost of doing nothing.
- Blue ocean strategy: considering new areas of exploration rather than highly competitive areas.
Opportunity Costs was first introduced as an economics concept by David L. Green in 1984, in his article: Pain cost and opportunity cost. It appeared in the Quarterly Journal of Economics. Its origin is also linked to TANSTAAFL (There ain’t no such thing as a free lunch) in 19th century America in saloons.
My Notes
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