Opportunity Cost is Important
Probably the few people that read this blog are already quite familiar with opportunity cost, but on the off chance that Tumblr SEO ever starts working and someone new ends up here, I think this is worth reposting.
I was delighted to see this video from my friend Vince in my inbox this evening. He’s been video blogging on Youtube lately, and one of the things I mentioned to him as an idea for a post was opportunity cost—I said to him a few weeks ago, “I can’t believe how many people just don’t get this or don’t act with this idea in mind.”
Vince brings up a great point in his video that even those of us quite familiar with opportunity cost can benefit greatly from the exercise of assessing how we spend our few evening hours. A lot of my time, I admit, is spent messing around on the internet—I like to think of it as research / social psychology, but most of it is probably not very productive. (BTW, here’s a nice tool for analyzing exactly how you spend your time on your computer if you’re concerned with this sort of thing: http://www.rescuetime.com/ —props to @tipjoy for convincing me to give this a shot.)
To add a few desultory thoughts to what Vince has said in his video:
My favorite example of acting with opportunity cost in mind is chore-outsourcing. This is an easy thing to take advantage of, especially if you live in NYC. I’m still amazed when people are amazed that I have my laundry done by a wash and fold around the corner. “What luxury! How extravagent!” Really, if you have easy access to a wash and fold and make more than $10/hr, you’re stupid not to have someone else do your laundry. Here’s the math: I would spend $6 doing laundry at the laundromat myself, plus probably about $1 on the detergent / softener. Furthermore, folding the laundry would take me 1/2 hour of my time, and if I have to wait in the laundromat for wash and dry cycles, at minimum it would cost me another 15 minutes for loading / switching from washer to dryer, etc.
At the wash and fold, I pay about $10-$12 to do the same amount of laundry, plus, I don’t have to go to the store to buy detergent, I don’t have to load washer / dryer, and I don’t have to fold laundry (a task which I hate doing). So I’m pay $4-$6 to have someone else do a task I don’t enjoy, plus I’m saving 1/2 - 1 hour of my time. So even if my time is only worth $10/hr, by avoiding half an hour of laundry folding I make back the $5 I pay the wash and fold for their services, and it’s all profit after that—I’m free to spend my time some other way. The more valuable your time, the more it makes sense to outsource tasks like laundry in this way. Lesson: start paying someone to do your laundry!
A second anectdote—I was hanging out with some friends of friends who are still in school at Penn a few weeks ago, and somehow started talking about nutrition and health. I was saying something to the effect of “many people think Whole Foods is expensive, but real food is actually not that expensive. You should see the amount of broccoli you can buy for $5 as opposed to a box of cereal.” One of the girls, a junior at Penn, said to me, “You’re not counting the opportunity cost of preparing / cooking the broccoli vs. the time it takes to have a bowl of cereal.” Spot on. I still tend to think broccoli vs. cereal is the way to go, but I love the fact that someone so young is bring up opportunity cost in a casual discussion. Guess the alma mater is teaching something right.
I’ll close with a quote from the vid I love:
“I spend a lot of time goofing around on the internet…. The opportunity cost of that, is the book that I want to write or the Nobel Peace Prize that I want to win.”
