? Heuristic of the Day: Opportunity Cost Neglect
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If you ever took Economics 101, “opportunity cost” should at least pull at your memory. The professor probably defined it with some impenetrable agrarian fraction: “the opportunity cost for 1 beet is ? of an okra bushel.”
An opportunity cost refers to the cost of all the things you didn’t do instead. Let’s use a better example than your Economics professor. Say you were at Woodstock and really wanted to see Jimi Hendrix play, but he was playing at the same time as Carlos Santana. The opportunity cost to seeing Jimi is not seeing Santana (and that’s genuinely expensive).
Yet, because of what has been called “bounded rationality,” people struggle with making the appropriate opportunity cost calculations. The issue is simple: it is hard to keep a hypothetical universe in mind. It’s hard enough living in one.
Once we have chosen our path, we stick with it and neglect the others. This removes a lot of mental burden from our day-to-day.?
While the quick and intuitive mind is great for many decisions, sometimes these shortcuts can lead to rushed choices that do not consider the opportunity cost. Once you realize that a decision is important enough to warrant careful consideration, switching to a slow and deliberate mode of thinking is the first step in overcoming Opportunity Cost Neglect.