In a free market economy, individuals are permitted to make more economic decisions for themselves instead of having government bureaucrats and/or politicians make their decisions for them. Where to work, where to live, what to produce and sell, what to buy: all those choices are left to the individual to make.
So when we talk about making decisions, or making choices, is there a better way to make better decisions? Studying the opportunity cost of any given decision can help anyone make better decisions (and with less pain in the long run).
So when we talk about making decisions, or making choices, is there a better way to make better decisions? Studying the opportunity cost of any given decision can help anyone make better decisions (and with less pain in the long run).
"The first framework I teach to people I work with is opportunity cost. Translated from academic economics jargon, the opportunity cost of any given action is the value that taking the next-best option would bring. This is one of my favorite frameworks for making decisions.
You can use opportunity cost as a way to compare options for yourself, to understand the stakes at play for others in negotiations, and to present new options to potential customers. It’s even a tool you can use to understand why friends might make the decisions they do or why a date decided not to go on a second date with you.
Opportunity cost is the fundamental way in which people compare between alternatives. This doesn’t assume perfect knowledge or rationality, either. People make decisions by comparing the perceived cost of option A to that of option B. Those perceptions may be objectively incorrect (people are often bad at understanding the opportunity cost of going to school, for example), but clarifying and informing those perceptions is what conversations and marking are for.
Take the simple example of trying to decide whether to go out with friends and drink or to stay in and read for the evening."