In our modern world, there are endless alternatives. Have you ever found yourself wondering whether you should quit or stay in your job, accept an offer or give it up for another? There is a simple and practical method that solves this problem. 1[■] When you understand the concept, you have the power to measure every alternative with precision and make the right decision.
In the field of economics, opportunity cost is the value that you have to give up when you choose an option over another good option. 2[■] Every time you choose something, you give up other alternatives together with their financial benefits. It is not all the other options, but the most valued one that is defined as the opportunity cost.
3[■] Take the simple example of trying to decide whether to take public transportation for 80 minutes or to drive for 40 minutes. You might save on the cost of gas while riding the bus but double the trip length and miss out on other things you could have done during that time. 4[■] This is how you create priorities in your daily life.
Though useful in decision making, the biggest drawback of opportunity cost is that it’s often related to what’s hard to quantify. 5[■] After all, putting a number to your peaceful mind or happiness can be difficult.
Opportunity cost isn’t cut and dried. It varies from person to person. At the end of the day, you are in charge of what you own and what you want to gain.