The Opportunity Costs of Life

I would say that opportunity cost is probably the most valuable concept found in economics, where it distills decision-making to comparing our current choice with the next best alternative. This ‘next best alternative’ is the opportunity cost, which is measured by what we give up when we undertake any action or decision. Although taught in the context of financial decisions, I would say that this concept extends to all domains of life – to decision-making as a whole.

The reason why this concept of opportunity cost exists is because of the notion of scarcity. In theory, we have unlimited needs and wants. However, we only have finite resources. Resources don’t just include money, it includes time, materials, etc. Because of this problem of scarcity, the study of economics is to address this problem by allocating resources in the most efficient way possible. In other words, how to choose the most optimal outcome financially. As the economy composes of many individuals making countless transactions, such an outcome can only happen when people are entirely rational. This is because rational people would not make decisions that are sub-optimal. If given a better opportunity, a rational person would not pick the 2nd best or 3rd best option. This seems fair enough, but this theoretical “rationality” is a lot harder to achieve than what meets the eye.

In reality, humans are a lot more complex than we realise. A large portion, if not all the decisions we make are sub-optimal. This is likely due to imperfect information of the past, present, and future. Because we are human, we don’t have perfect memory. Our memories of what has happened in the past decays exponentially, being captured by the forgetting curve.

Moreover, in the present, we may not be completely present (pun intended)! We may be sleep-deprived and have poor concentration like I am now writing this. We also face the existential fact that we can only observe one point of view of an experience at any moment in time, being limited to our own perspective of things. With the options limited to our conscious perception, we may not know that other better alternatives exist! In terms of forecasting the future, the noise increases as we forecast ahead, where just like the weather, more and more variables make estimation a lot harder. From the get-go, data collection through our consciousness is already finite and imperfect. Among the past, present, and future, we are also burdened by the passage of time, where the longer we take to make a decision is actually a decision itself. By being indecisive, we are choosing to spend time making a decision when we could be using that time for something else. Before we know it, the future will soon become the present, the present will soon become the past, and eventually, the past will be forgotten.

In our technologically oriented world, there is now an explosion of options of how to spend our time. Objectively, this is actually a good thing, but when faced with such a sea of choices, we often acquire a fit of paralysis when making a decision. I think it can be fair to say that the more options, the higher the opportunity cost of making any decision because of the sheer amount of options that can contend to be the ‘next best alternative’.

Another issue that humans face is that we aren’t entirely rational and we have to battle our own human psychology. One such battle which all of us fight is this lifelong antagonist named procrastination. Procrastination can be said to be a willingness for us to do that which we consciously know is suboptimal. In our choice of procrastinating, we momentarily weigh instant gratification over the future reward for the task at hand. As humans, we have a tendency to overvalue instant gratification over future rewards. Such a desire may have been greater rewarded in the ancient era of the hunter-gatherer, however in our modern world, much has changed.

At the end of the year, we often have the thought that “gosh, time has flown by so quickly”. This thought might be due to the fact that we haven’t done that much in a year. Another reason could be that we overestimate how long a year really is. After all, a year really is just 52 weeks. If I were to do a journal/blog post every week that would only be 52 posts. There are often many weeks that I have felt have flown by like the blink of an eye, where the hours dwindled without much notice. If a week can be said to be like a blink of an eye, a year would compose of just 52 blinks! A year can really be a lot shorter than what we perceive.

Because of our finitude, the opportunity costs of life will continue to be a problem whenever we make a decision.

Ali Abdaal, a YouTuber that I admire a lot had said a phrase in one of his videos (I don’t remember which) that really resonated with me. I’ve written this phrase on the front of my physical journal – of which he deemed the ‘One Year Rule’. It goes like this:

“In one year’s time, what will I regret not starting today?”

This ‘rule’ is quite liberating in that we should try to live life in order to minimise the regret we feel in the future. This rule suggests for us to seize the time that is bestowed to us, and use it in a constructive way to better the situation of our future self. When given the time, we should aspire to read the books we’ve always wanted to read. To catch up with a friend that we’ve always wanted to catch up with. To spend time with family as we can never know with certainty what will happen tomorrow. The time that we spend may well be the last time that we can see them face to face.

We should strive towards spending our time on worthwhile things, always keeping the notion of opportunity cost at the back of our minds. We need to remind ourselves constantly that “in one year’s time, what will I regret not starting today?”