Opportunity Cost

Opportunity cost is a fairly fundamental accounting concept that refers to the cost you give up by making a particular decision. While easy to understand, I find most people fail to properly include these tradeoffs in their decision making.

This is especially true when people talk about risk and frame career decisions. “It is not risky to go do x and make a lot of money etc.”

This is a very common sentiment, but how accurate is it?

Recognizing the implicit opportunity costs is an important stage in one’s analysis. It is important if and only if you aim to find the best answer. The best answer, though, is often not easy or convenient. In fact, people often do not include these hidden costs simple because it is convenient to forget they exist.

Hard things are hard to discover.


Originally published at Jordan Gonen.