An under-considered key to good decision-making.
Posted Nov 05, 2019
In making an important decision, most people consider pros and cons but are less likely to consider another key factor: opportunity cost. That refers to what you could otherwise do with the time or money.
For example, when deciding whether to marry someone, most people consider the pros and cons. But the decision should also consider the opportunity cost: Given your track record, lessons learned, locale, and the amount of effort you’d put in, what is the likelihood you’d meet someone better? And if you didn’t meet someone better, would you be better off alone? Even if you wanted to have a child, would you be better off having that person as the parent or be a single parent?
It’s also wise to consider opportunity cost when making a big purchase, say a new car. What could you otherwise do with that money? Some purchase that would yield greater pleasure or practicality? Invest it? For some people, the sense of financial security and even watching your investments’ value rise (hopefully not fall) gives pleasure in excess of the benefit from a new car.
Also consider opportunity cost In deciding whether to get another degree. What could you otherwise do with the time and money? Do more learning with a tutor, from individual courses, from on-the-job learning? Stand pat and try to succeed with your existing education? What benefits and liabilities would those accrue?
Opportunity cost is key when offered a job. The opportunity cost of taking it depends on how likely, if you turned it down, you'd be to get a better job offer. And that, of course, depends on how in-demand are the nature and level of your skillset, abilities, and bonafides. A Harvard PhD who has had a series of promotions in a hot field, for example, researching autism, and just got a million-dollar research grant will more likely get more good job offers than would a high school dropout with a poor employment record and only widely-held soft skills such being pleasant.
Considering opportunity cost can be valuable when choosing a career. For example, if you’re contemplating becoming a psychotherapist, what’s the opportunity cost? That is, what’s the best alternative you’d be giving up: perhaps a helping career that requires shorter training, for example, occupational therapist, personal coach, financial advisor, or some career having nothing to do with psychology.
Considering opportunity cost can yield wiser decisions.