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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. Duo Reges: constructio interrete. Ita redarguitur ipse a sese, convincunturque scripta eius probitate ipsius ac moribus. Sapientem locupletat ipsa natura, cuius divitias Epicurus parabiles esse docuit. Nulla erit controversia. Quae hic rei publicae vulnera inponebat, eadem ille sanabat. Sin laboramus, quis est, qui alienae modum statuat industriae? Torquatus, is qui consul cum Cn. Terram, mihi crede, ea lanx et maria deprimet. Dic in quovis conventu te omnia facere, ne doleas. Theophrasti igitur, inquit, tibi liber ille placet de beata vita? An me, inquam, nisi te audire vellem, censes haec dicturum fuisse? Tum ille: Ain tandem? Bonum integritas corporis: misera debilitas. Tu enim ista lenius, hic Stoicorum more nos vexat. Si de re disceptari oportet, nulla mihi tecum, Cato, potest esse dissensio. Ita similis erit ei finis boni, atque antea fuerat, neque idem tamen; Quod ea non occurrentia fingunt, vincunt Aristonem; Ita graviter et severe voluptatem secrevit a bono. Ita ceterorum sententiis semotis relinquitur non mihi cum Torquato, sed virtuti cum voluptate certatio.
- 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. Ergo opifex plus sibi proponet ad formarum quam civis excellens ad factorum pulchritudinem? Duo Reges: constructio interrete. Sed haec ab Antiocho, familiari nostro, dicuntur multo melius et fortius, quam a Stasea dicebantur. Nulla profecto est, quin suam vim retineat a primo ad extremum. Scientiam pollicentur, quam non erat mirum sapientiae cupido patria esse cariorem. Nec vero sum nescius esse utilitatem in historia, non modo voluptatem. Non est ista, inquam, Piso, magna dissensio. Mihi, inquam, qui te id ipsum rogavi?
Illis videtur, qui illud non dubitant bonum dicere -; Sed potestne rerum maior esse dissensio? At miser, si in flagitiosa et vitiosa vita afflueret voluptatibus. Si autem id non concedatur, non continuo vita beata tollitur. Hoc loco tenere se Triarius non potuit. Tanti autem aderant vesicae et torminum morbi, ut nihil ad eorum magnitudinem posset accedere. Et harum quidem rerum facilis est et expedita distinctio. Facete M.
Summus dolor plures dies manere non potest? Idem iste, inquam, de voluptate quid sentit? Piso, familiaris noster, et alia multa et hoc loco Stoicos irridebat: Quid enim? Erat enim Polemonis. Cur, nisi quod turpis oratio est? Sic vester sapiens magno aliquo emolumento commotus cicuta, si opus erit, dimicabit.
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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