Opportunity Costs

Derived from:

Economics Fundamentals

"Intelligent people make decisions based on opportunity costs" - Charlie Munger

Opportunity costs describe the cost of missed opportunities resulting from commitments we say yes to. In other words, whenever we say yes to one thing, we are saying no to another. And the utility we're missing out on is our opportunity cost. This term is helpful when looking at decision-making from an economic perspective where perfect rationalism is assumed. Despite this term seeming theoretic, there is substantial value in understanding it, and consequently applying it in our lives. Whenever someone asks you for a favour, take a moment to realise the opportunity costs of saying yes, namely: What are you saying no to? Including this component in your decision making will help you separate what truly matters to you and what doesn't.


Written by

Louis Morgner

published on

September 13, 2021

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