Opportunity costs: think of the big but not the small

version of this essay was published as part of my monthly newsletter several weeks back. Find other archives and join here to get updates like this first.

Economists love to review our decisions through the lens of opportunity costs. Each decision we make has the added cost of that which we did not do. 

When a big box-store clerk, paid hourly, volunteers to leave her shift early because foot traffic is particularly slow, she’s making a choice. She values what she does with that time more than the wage she would have earned. 

When an influential academic, evaluated by her published research, agrees to take on another young mentee, she’s making a choice. She values that relationship and the person’s development more than what she perceives to be the potential career gains she could have developed with more time in the lab.

I wrestle with this paradigm more often than I might want to admit.

On a Sunday afternoon, I might juggle working with my hands on a house project (like getting dusty by sanding spackle, as depicted above), getting caught up on an onslaught of work, spending time with my wife and developing my personal writing and network through this very newsletter.

I value all these endeavors but, as an economist might remind you, we choose with our time. One of the defining characteristics of our early social web era is FOMO. This is just an informal way of describing a confrontation with opportunity cost. “I have to be here, and that IG Story of the party is forcing me to confront the opportunity cost.” But FOMO is a blight because it is focusing on the small stuff.

Behavioral economics teaches that all of us are too overwhelmed by all the options in the world, so we aren’t actually always so rational in these decisions. I leave my shift because I’m bored. I take on the extra mentee because I don’t want to tell someone no. I spend less time on my newsletter for a few months because of unexpected life changes. These weren’t always reasoned-out decisions. We just made them.

Some of us try to resist this framework entirely. “Let come what will come,” we say. “Don’t overthink it,” you might say. There’s a funny irony in that though. Because not making a decision is itself making a decision. You didn’t escape the concept of opportunity cost, you’ve just developed an approach to it, with the help of the default. 

This doesn’t have to add stress. It’s a way to understand the world and how you choose to work your way through it. I have to remind myself: Don’t be paralyzed by too many options for everyday choices. That itself is an example of misunderstanding opportunity cost: sometimes a third-best decision is better than the time and strain of analyzing mundanity. Continuing to buy the same dish soap brand really is rational. 

In contrast, do think about the biggest decisions in your life with this in mind. I sure try to. What are you doing now, for work or for living or for hobby. What might you be able to do otherwise. Is it better? Or is it just a nice fantasy? Where and whom do you want to be and what will help you get there? If we put the work in, we can have more agency in our lives than we sometimes realize.

Remember, in contrast with what is most commonplace: we should be patient for the big and impatient for the small. Understanding opportunity cost helps us change speeds in our life.