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. Haec bene dicuntur, nec ego repugno, sed inter sese ipsa pugnant. Nec vero alia sunt quaerenda contra Carneadeam illam sententiam. Gracchum patrem non beatiorem fuisse quam fillum, cum alter stabilire rem publicam studuerit, alter evertere. Quamquam haec quidem praeposita recte et reiecta dicere licebit. Duo Reges: constructio interrete. Ea possunt paria non esse. Quo modo autem optimum, si bonum praeterea nullum est? Nec tamen ullo modo summum pecudis bonum et hominis idem mihi videri potest. Minime vero istorum quidem, inquit. Quodsi ipsam honestatem undique pertectam atque absolutam. Aliud igitur esse censet gaudere, aliud non dolere. Vide, quantum, inquam, fallare, Torquate. Aliter enim nosmet ipsos nosse non possumus. Vide, ne etiam menses! nisi forte eum dicis, qui, simul atque arripuit, interficit. Itaque hic ipse iam pridem est reiectus; Ut optime, secundum naturam affectum esse possit. Utrum igitur tibi litteram videor an totas paginas commovere? Neque solum ea communia, verum etiam paria esse dixerunt. Sed quoniam et advesperascit et mihi ad villam revertendum est, nunc quidem hactenus; Quid loquor de nobis, qui ad laudem et ad decus nati, suscepti, instituti sumus? Vitiosum est enim in dividendo partem in genere numerare.
- 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. Itaque primos congressus copulationesque et consuetudinum instituendarum voluntates fieri propter voluptatem; Sin tantum modo ad indicia veteris memoriae cognoscenda, curiosorum. Quare, quoniam de primis naturae commodis satis dietum est nunc de maioribus consequentibusque videamus. In qua si nihil est praeter rationem, sit in una virtute finis bonorum; Nihilne est in his rebus, quod dignum libero aut indignum esse ducamus? Ut enim consuetudo loquitur, id solum dicitur honestum, quod est populari fama gloriosum. Quis hoc dicit? Duo Reges: constructio interrete. Haec para/doca illi, nos admirabilia dicamus. Nam his libris eum malo quam reliquo ornatu villae delectari. Si longus, levis dictata sunt. Qui autem diffidet perpetuitati bonorum suorum, timeat necesse est, ne aliquando amissis illis sit miser.
Atque ab his initiis profecti omnium virtutum et originem et progressionem persecuti sunt. Familiares nostros, credo, Sironem dicis et Philodemum, cum optimos viros, tum homines doctissimos. Sed non alienum est, quo facilius vis verbi intellegatur, rationem huius verbi faciendi Zenonis exponere. Iubet igitur nos Pythius Apollo noscere nosmet ipsos. Indicant pueri, in quibus ut in speculis natura cernitur. Non laboro, inquit, de nomine.
Nec lapathi suavitatem acupenseri Galloni Laelius anteponebat, sed suavitatem ipsam neglegebat; Rationis enim perfectio est virtus; Fortasse id optimum, sed ubi illud: Plus semper voluptatis? Quid enim ab antiquis ex eo genere, quod ad disserendum valet, praetermissum est? Fatebuntur Stoici haec omnia dicta esse praeclare, neque eam causam Zenoni desciscendi fuisse. Ego vero volo in virtute vim esse quam maximam;
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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