0 saved
10.9K views
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. Nam et complectitur verbis, quod vult, et dicit plane, quod intellegam; Sed ille, ut dixi, vitiose. Fortitudinis quaedam praecepta sunt ac paene leges, quae effeminari virum vetant in dolore. Sed quod proximum fuit non vidit. Idem etiam dolorem saepe perpetiuntur, ne, si id non faciant, incidant in maiorem. Iam id ipsum absurdum, maximum malum neglegi. Duo Reges: constructio interrete. Dicet pro me ipsa virtus nec dubitabit isti vestro beato M. Consequens enim est et post oritur, ut dixi. Nonne videmus quanta perturbatio rerum omnium consequatur, quanta confusio? Tu vero, inquam, ducas licet, si sequetur; Quid enim me prohiberet Epicureum esse, si probarem, quae ille diceret? Restatis igitur vos; Quodsi ipsam honestatem undique pertectam atque absolutam. Num igitur eum postea censes anxio animo aut sollicito fuisse? Nec hoc ille non vidit, sed verborum magnificentia est et gloria delectatus.
- 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. Praeclare hoc quidem. Tum ille: Tu autem cum ipse tantum librorum habeas, quos hic tandem requiris? Gloriosa ostentatio in constituendo summo bono. Egone non intellego, quid sit don Graece, Latine voluptas? Quam ob rem tandem, inquit, non satisfacit? Hoc enim constituto in philosophia constituta sunt omnia.
Piso, familiaris noster, et alia multa et hoc loco Stoicos irridebat: Quid enim? Indicant pueri, in quibus ut in speculis natura cernitur. Post enim Chrysippum eum non sane est disputatum. Quare attende, quaeso. Isto modo ne improbos quidem, si essent boni viri. Sed eum qui audiebant, quoad poterant, defendebant sententiam suam. Si longus, levis; An potest, inquit ille, quicquam esse suavius quam nihil dolere? Qui enim voluptatem ipsam contemnunt, iis licet dicere se acupenserem maenae non anteponere.
Duo Reges: constructio interrete. In quibus doctissimi illi veteres inesse quiddam caeleste et divinum putaverunt. Si qua in iis corrigere voluit, deteriora fecit. Materiam vero rerum et copiam apud hos exilem, apud illos uberrimam reperiemus. At miser, si in flagitiosa et vitiosa vita afflueret voluptatibus.
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
Oops, That’s Members’ Only!
Fortunately, it only costs US$5/month to Join ModelThinkers and access everything so that you can rapidly discover, learn, and apply the world’s most powerful ideas.
ModelThinkers membership at a glance:
“Yeah, we hate pop ups too. But we wanted to let you know that, with ModelThinkers, we’re making it easier for you to adapt, innovate and create value. We hope you’ll join us and the growing community of ModelThinkers today.”
You Might Also Like:
- Actionable summaries of the world's most powerful ideas.
Subscribe now and download this practical guide to transform your thinking, plus recieve one short, powerful and actionable idea in your inbox each month.