0 saved
11.7K 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. Paulum, cum regem Persem captum adduceret, eodem flumine invectio? Et quidem, Cato, hanc totam copiam iam Lucullo nostro notam esse oportebit; Cum audissem Antiochum, Brute, ut solebam, cum M. Nunc omni virtuti vitium contrario nomine opponitur. Quod si ita se habeat, non possit beatam praestare vitam sapientia. Ego vero isti, inquam, permitto. Etsi qui potest intellegi aut cogitari esse aliquod animal, quod se oderit? Ergo hoc quidem apparet, nos ad agendum esse natos. In quo etsi est magnus, tamen nova pleraque et perpauca de moribus. Quis non odit sordidos, vanos, leves, futtiles? Atque etiam valítudinem, vires, vacuitatem doloris non propter utilitatem solum, sed etiam ipsas propter se expetemus. Urgent tamen et nihil remittunt. Quid autem habent admirationis, cum prope accesseris? Mihi vero, inquit, placet agi subtilius et, ut ipse dixisti, pressius. Hunc vos beatum; Dat enim intervalla et relaxat. Gracchum patrem non beatiorem fuisse quam fillum, cum alter stabilire rem publicam studuerit, alter evertere. Est, ut dicis, inquam. Duo Reges: constructio interrete. Et quod est munus, quod opus sapientiae? Tanti autem aderant vesicae et torminum morbi, ut nihil ad eorum magnitudinem posset accedere. Hoc mihi cum tuo fratre convenit.
- 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. Cum ageremus, inquit, vitae beatum et eundem supremum diem, scribebamus haec. Ne amores quidem sanctos a sapiente alienos esse arbitrantur. Hoc dictum in una re latissime patet, ut in omnibus factis re, non teste moveamur. At miser, si in flagitiosa et vitiosa vita afflueret voluptatibus. Pudebit te, inquam, illius tabulae, quam Cleanthes sane commode verbis depingere solebat. Duo Reges: constructio interrete. Tum Torquatus: Prorsus, inquit, assentior;
Quia dolori non voluptas contraria est, sed doloris privatio. Et nemo nimium beatus est; Ut optime, secundum naturam affectum esse possit. Ita nemo beato beatior.
Tollenda est atque extrahenda radicitus. Quare obscurentur etiam haec, quae secundum naturam esse dicimus, in vita beata; Erit enim mecum, si tecum erit. Qui autem esse poteris, nisi te amor ipse ceperit? Dolor ergo, id est summum malum, metuetur semper, etiamsi non aderit;
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.