Opportunity Cost

Opportunity cost might be the most overlooked part of every decision, but even if you know about it, most people stay stuck because of something called Absence Blindness.

So in order to make good decisions, it’s important to have an understanding of both.

According to OpenStax, Opportunity cost is the "value of the next best alternative."

If your tuition is $60,000, college doesn’t just cost you 60,000. It costs that PLUS the money you could make outside of school, and the extra money you could make with four more years of workforce experience.

It’s the option you have to give up.

Josh Kaufman brings up the idea as well that opportunity cost is partially so important, because it’s hidden. There’s something called Absence Blindness. It’s a cognitive bias we all have that makes it so we can’t identify what we don't observe.

It’s like wifi. As soon as your phone gets slow, you crash out, but you never notice when the wifi works great.

That’s why it’s important to understand that our psychology is literally wired to keep us from considering opportunity cost.

And in the words of the great Charlie Munger, “life is a whole series of opportunity costs."