This essential concept will increase your writing by 100%
Opportunity cost: every decision has a hidden price
Ever had the feeling you want to do more, but somehow always fail? Ever feel like you never had enough time?
The concept of ‘opportunity cost’ does not come from the self-improvement realm.
It is an economic term, and while the concept might seem hard to understand, we all use it unconsciously multiple times a day in our private lives.
Definition of opportunity cost
Opportunity cost represents the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another. While opportunity costs can’t be predicted with total certainty, considering them can lead to better decision-making. (CFR Investopedia)
In more simple words: it is whatever you give up when you make one decision over another (Why does Investopedia make definitions so hard to understand anyway?).
My internalization: EVERY decision has a price, even if we do not realize it initially.
An easy example of opportunity cost in our private life
It is Saturday evening and I want to see a movie.
I now have 2 choices:
- Do I get dressed up and go to the movies?
- Do I stay inside and study for my upcoming exam?
- When I choose option 1, the opportunity cost is that I will NOT learn something new and that I will potentially have a bad grade.
- When I choose option 2, the opportunity cost is that I will NOT get any relaxation and I will NOT get to see a movie on the big screen (ok ok, I just wanted to devour a HUGE bucket of popcorn… you caught me)
Opportunity cost in business
As an executive, I use the concept of opportunity cost daily, and I am grateful that I understand this concept.
We use opportunity cost to determine which projects we should prioritize first.
We list all the pros and cons of all available projects and can then make an informed decision on what are the most important ones to tackle first.
Opportunity cost in Society
Our government in all our respective countries uses the opportunity concept too daily.
They use it to determine where the money from our taxes goes: to infrastructure, healthcare, education, defense, and so on.
They have to carefully weigh the advantages of one budget allocation, against the lost opportunities of the other sector.
How opportunity cost can increase your productivity 100%
Now that we have a good understanding of what opportunity cost is, we can use it to increase our productivity
For example, on the same Saturday evening, I have a choice between:
- NETFLIX and chill
- Write a new article on Medium
- When I choose option 1, I will NOT publish a new Medium article that could make me $1$ a day for the next few years.
- When I choose option 2, I will not get to crawl under my comfy blanket and watch Game of Thrones.
I think it is clear that the opportunity cost of NOT making a potential 1$ for the next coming years far outweighs the temporary pleasure of watching a television show (even if it is with Emilia Clarke!).
This is why I am writing this article late at night. Before I understood this concept, I would have chosen to watch Game of Thrones, hands down!
Conclusion
Use the concept of opportunity cost in your daily life to make better choices: whether it is regarding productivity, investing, dieting, or whatever you want to achieve.
Then be honest with yourself about how you will feel if you do choose that donut, or that Triple, half-sweet, non-fat, caramel leche doppio coffee that costs 10$!