Opportunity cost
The real price of anything is the next best thing you gave up for it, in money and in hours. Learn to ask 'instead of what?' and to see the quiet no inside every yes.
Opportunity cost
The value of the next best thing you gave up in order to do this one. Not everything you gave up, and not an imaginary perfect alternative: the single best option you really had and didn't take. Because one sum of money and one hour can only go to one place, every yes contains a quiet no.
A free three-hour workshop isn't free. Its price is the best other use of those three hours: a long walk, an evening on your own project, or the sleep you were already short of.
Nasrin is buying a fridge.
Option A: the shop ten minutes away 18,000
Option B: the warehouse across the city 16,500
getting there and back: 3 hours
fuel and parking: 200
Money saved by choosing B:
18,000 - 16,500 - 200 = 1,300
Time it costs her: 3 hours
So option B pays her about 430 per hour.If three of Nasrin's hours are worth more to her than 430 each, the
nearer shop is the cheaper choice, despite the higher price tag.
If they're worth less, the warehouse wins. Either answer is fine;
what matters is that she compared, instead of just reading prices.The numbers are only an example. The method is general: every 'saving' that costs you time has an hourly rate hidden inside it, and you can work it out in about ten seconds.
Check yourself
Kaveh runs his online shop alone and spends about six hours a week on his own bookkeeping. An accountant would do it for a fee. What does opportunity cost say?
- Do it himself: paying someone is an extra cost he can avoid
- Hire the accountant, because specialists are always worth it
- Price those six hours by what they'd bring in elsewhere, then compare with the fee
- Do half himself and hand over the other half
Show the answer
Price those six hours by what they'd bring in elsewhere, then compare with the fee
Yes. The work he does himself isn't free, it costs six hours. If six hours on customers or new products brings in more than the fee, doing it himself is the expensive option.
Two costs in every decision
The cost you can see
The number on the tag, the invoice, the fee. It's written down, so it's the one everybody argues about. It's also the easy half, and the half that is usually smaller.
The cost you can't
What that money or that time would otherwise have done. Nobody invoices you for the Saturday you spent, or for the course you didn't take because the money went somewhere else. Just as real, and often larger.
THE HIDDEN NO
Every yes is a no to something
When you agree to the Thursday evening meeting, you aren't adding an hour to your week. You're taking it from something. The trouble is that the yes is specific and the no is vague, so the yes always sounds better. Fix that by making the no specific: 'yes to this means no to what, exactly?'
Ramin says yes to a small favour for a colleague most weeks. He also says he has no time for the qualification he keeps talking about. Those are the same sentence, said twice.
Check yourself
Match each yes to the no it quietly contains
Show the answer
- Yes to a second job at weekends → No to rest and to time with your family
- Yes to a car at the very top of your budget → No to a cushion for a bad month
- Yes to the project that runs all year → No to every other project this year
- Yes to an hour of scrolling before bed → No to an hour of sleep or reading
Making it concrete
- Compare with the next best real option, not with nothing and not with a fantasy. 'Instead of what?' is the whole model in three words.
- Put both sides in the same unit: money against money, or hours against hours. Mixed comparisons are where people fool themselves.
- For time, remember the week is fixed. A new commitment is never added to a week; it is subtracted from something already in it.
- Recurring commitments deserve the most care, because they charge you the same opportunity cost roughly fifty times a year.
Check yourself
Golnaz is offered a free ticket to a two-day conference in another city. She decides the ticket isn't the cost that matters, and compares the two days against what else those days would hold. That is the right way to weigh it.
Show the answer
True
Yes. The ticket is free; the two days and the travel are not. Their price is whatever those days would otherwise have held, such as work, rest, or people she doesn't see enough. If the conference beats that, she goes. 'It's free' was never the reason either way.
Check yourself
Sahar has two offers. A pays well and expects about 50 hours a week. B pays less and expects about 40. Which comparison uses opportunity cost properly?
- A, because more money is better and the hours even out over time anyway
- Ask what those extra 10 hours a week would otherwise hold
- B, because fewer hours is better and money isn't everything
- Ask which of the two companies has the better reputation
Show the answer
Ask what those extra 10 hours a week would otherwise hold
Right. The ten hours are the actual price of the extra pay: roughly 500 hours a year. Named against something real, an evening course, her children's bedtimes, a side project, the question becomes answerable.
The 'instead of what?' routine
- Name the next best option out loud
Not 'something else'. The specific thing: the other flat, the evening course, two hours of sleep, the client you'd have called.
- Price both sides in the same unit
Money against money, hours against hours. If one side is money and the other is time, turn the time into money roughly, or turn the money into hours of your own work.
- Check whether it repeats
A one-off charges you once. A weekly commitment charges you about fifty times a year, which is where most of the damage lives.
- Decide, then stop reopening it
Once you've chosen with the alternative named, what you gave up is spent. That's the sunk cost from lesson 8, and reliving it doesn't buy it back.
Check yourself
- Bahar: 'The gym is only a small amount each month, so it's basically free.'
- Bahar: 'The gym is a small amount each month, plus forty minutes of travel each visit. Three visits a week is two hours, and those are my only two free evenings.'
What did the second version add?
- A more accurate monthly fee
- The real price, which turned out to be mostly time rather than money
- A reason to cancel the membership
- The opinions of the other members
Show the answer
The real price, which turned out to be mostly time rather than money
Yes, and notice she hasn't decided anything yet. She's just looking at the whole price. A gym twenty minutes closer might now be worth paying more for.
Lesson recap
- The real cost of anything is the next best thing you gave up for it, not the number on the tag.
- Ask 'instead of what?' and name the alternative specifically, or the yes will always sound better than the no.
- Free things aren't free when they cost hours, and savings that cost hours have an hourly rate you can calculate.
- The week is fixed: a new commitment is subtracted from something, and a weekly one charges you about fifty times a year.
- Don't optimise every hour, and don't compare with a fantasy alternative you'd never have chosen.