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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. Nullum inveniri verbum potest quod magis idem declaret Latine, quod Graece, quam declarat voluptas. Atque haec ita iustitiae propria sunt, ut sint virtutum reliquarum communia. A primo, ut opinor, animantium ortu petitur origo summi boni. Potius inflammat, ut coercendi magis quam dedocendi esse videantur. An est aliquid per se ipsum flagitiosum, etiamsi nulla comitetur infamia? Quae duo sunt, unum facit. Varietates autem iniurasque fortunae facile veteres philosophorum praeceptis instituta vita superabat. Est enim effectrix multarum et magnarum voluptatum. Quis animo aequo videt eum, quem inpure ac flagitiose putet vivere? Dolere malum est: in crucem qui agitur, beatus esse non potest. Duo Reges: constructio interrete. Et quidem iure fortasse, sed tamen non gravissimum est testimonium multitudinis. Quis Aristidem non mortuum diligit? Sint ista Graecorum; Haec quo modo conveniant, non sane intellego. Apparet statim, quae sint officia, quae actiones. Si longus, levis dictata sunt. Sed quanta sit alias, nunc tantum possitne esse tanta.
- 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. Vide, quantum, inquam, fallare, Torquate. Neminem videbis ita laudatum, ut artifex callidus comparandarum voluptatum diceretur. Tenesne igitur, inquam, Hieronymus Rhodius quid dicat esse summum bonum, quo putet omnia referri oportere? Illa argumenta propria videamus, cur omnia sint paria peccata. Duo Reges: constructio interrete. Hoc dixerit potius Ennius: Nimium boni est, cui nihil est mali. Itaque a sapientia praecipitur se ipsam, si usus sit, sapiens ut relinquat. Qui ita affectus, beatum esse numquam probabis; Ne amores quidem sanctos a sapiente alienos esse arbitrantur. Et quidem Arcesilas tuus, etsi fuit in disserendo pertinacior, tamen noster fuit; Universa enim illorum ratione cum tota vestra confligendum puto.
Sed haec nihil sane ad rem; Philosophi autem in suis lectulis plerumque moriuntur. Quamquam non negatis nos intellegere quid sit voluptas, sed quid ille dicat. Cur igitur easdem res, inquam, Peripateticis dicentibus verbum nullum est, quod non intellegatur? Fortasse id optimum, sed ubi illud: Plus semper voluptatis? Dolor ergo, id est summum malum, metuetur semper, etiamsi non aderit; Haec mihi videtur delicatior, ut ita dicam, molliorque ratio, quam virtutis vis gravitasque postulat. Ergo id est convenienter naturae vivere, a natura discedere.
Quae quidem sapientes sequuntur duce natura tamquam videntes; Sic enim censent, oportunitatis esse beate vivere. Nonne videmus quanta perturbatio rerum omnium consequatur, quanta confusio? Et ille ridens: Video, inquit, quid agas;
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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