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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. Invidiosum nomen est, infame, suspectum. Quae quidem vel cum periculo est quaerenda vobis; Duo Reges: constructio interrete. Qui autem diffidet perpetuitati bonorum suorum, timeat necesse est, ne aliquando amissis illis sit miser. Quod non faceret, si in voluptate summum bonum poneret. Eorum enim omnium multa praetermittentium, dum eligant aliquid, quod sequantur, quasi curta sententia; Nam et complectitur verbis, quod vult, et dicit plane, quod intellegam; Apud imperitos tum illa dicta sunt, aliquid etiam coronae datum; Bork Sed tamen est aliquid, quod nobis non liceat, liceat illis. Illa videamus, quae a te de amicitia dicta sunt. Theophrasti igitur, inquit, tibi liber ille placet de beata vita? Ergo ita: non posse honeste vivi, nisi honeste vivatur? Virtutis, magnitudinis animi, patientiae, fortitudinis fomentis dolor mitigari solet. Quasi ego id curem, quid ille aiat aut neget. Miserum hominem! Si dolor summum malum est, dici aliter non potest. Sed nunc, quod agimus; Oculorum, inquit Plato, est in nobis sensus acerrimus, quibus sapientiam non cernimus. Eaedem enim utilitates poterunt eas labefactare atque pervertere. Sin tantum modo ad indicia veteris memoriae cognoscenda, curiosorum. Qui est in parvis malis. Perturbationes autem nulla naturae vi commoventur, omniaque ea sunt opiniones ac iudicia levitatis. Hic Speusippus, hic Xenocrates, hic eius auditor Polemo, cuius illa ipsa sessio fuit, quam videmus. Ita finis bonorum existit secundum naturam vivere sic affectum, ut optime is affici possit ad naturamque accommodatissime.
- 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. ALIO MODO. Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur. Satis est tibi in te, satis in legibus, satis in mediocribus amicitiis praesidii. Verba tu fingas et ea dicas, quae non sentias? Hi curatione adhibita levantur in dies, valet alter plus cotidie, alter videt. Hinc ceteri particulas arripere conati suam quisque videro voluit afferre sententiam. Claudii libidini, qui tum erat summo ne imperio, dederetur. Qua ex cognitione facilior facta est investigatio rerum occultissimarum.
Quamquam ab iis philosophiam et omnes ingenuas disciplinas habemus; Occultum facinus esse potuerit, gaudebit; Deinde disputat, quod cuiusque generis animantium statui deceat extremum. Itaque contra est, ac dicitis; Quare hoc videndum est, possitne nobis hoc ratio philosophorum dare. Hos contra singulos dici est melius. Atqui eorum nihil est eius generis, ut sit in fine atque extrerno bonorum. Suo genere perveniant ad extremum; Parvi enim primo ortu sic iacent, tamquam omnino sine animo sint.
Duo Reges: constructio interrete. Nec vero pietas adversus deos nec quanta iis gratia debeatur sine explicatione naturae intellegi potest. Servari enim iustitia nisi a forti viro, nisi a sapiente non potest. Cum audissem Antiochum, Brute, ut solebam, cum M. Theophrastus mediocriterne delectat, cum tractat locos ab Aristotele ante tractatos? Hinc ceteri particulas arripere conati suam quisque videro voluit afferre sententiam. Qua igitur re ab deo vincitur, si aeternitate non vincitur? Ergo ita: non posse honeste vivi, nisi honeste vivatur? Idem etiam dolorem saepe perpetiuntur, ne, si id non faciant, incidant in maiorem. Atqui reperies, inquit, in hoc quidem pertinacem;
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.
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