“Opportunity cost” is such a beautiful concept. Economists define it cryptically as “the value of the best alternative forgone.” Like most important economics concepts, it is very intuitive and straightforward once you get it. But it takes some time to fully understand its implications for the real world. Plus, it can be a pain to explain. I recently had a conversation about it with my 10-year-old son. I am not sure if I did justice to such a fundamental concept.

“Daddy, what is opportunity cost?” he asked me out of the blue.

“Opportunity cost essentially means that everything you do costs something,” I replied.

“No, it doesn’t,” he retorted, as usual. I played along: “Yes, it does.”

“It does not,” he insisted. “It does too!”

He explained: “I know we have to pay when we get some ice cream at Blue Moo. That is costly. But it does not cost anything to go play with Rian.” Rian is his friend — a nice boy that lives across the street from us.

“Well, it may not cost you money. But, if you think about it, every time you go to Rian or when Rian comes over here, you are giving something up.”

“Like what?” He inquired.

“Like, you are giving up spending quality time with me. Or, spending some valuable time to practice piano. Or to do your homework.”

“But I prefer spending time with Rian!“ Ouch! “Besides, I have plenty of time to play soccer with you, or do my homework later.” Note that he has conveniently left out piano practice. I let that one slide.

“I am not saying that you should not play with Rian. The fact that you prefer spending time with him does not mean it does not cost anything,” I argued. “Even if it is your favorite thing to do, you still have to give something up. And it is not just about money or about time. It may also be about the value of the pleasure you would have received doing something else.”

“I do not understand,” he stated plainly.

“You may get pleasure out of doing one particular thing, but again, everything you do has a cost. Going out to a restaurant may mean missing out on Mom’s delicious homemade cooking. Choosing to go to a pizza place may mean missing out on a good bowl of pho at the Vietnamese restaurant. You have tons of options in life, and …”

“What are options?” he interrupted.

“Options are choices, things you can select from. In whatever you do in life, you will always have to make choices. As a smart boy, you will choose the least costly option. The option that you value the most and for which you have to give up the least. That, my dear boy, is the key to a happy and prosperous life: Choosing the options with the lowest opportunity cost.”

“Seriously? What is opportunity cost?”

“Are you kidding?”

“Yes. I am. Can we go to a restaurant tonight?”

“Ask your mother.”

“Can I go play with Rian now?”

“Sure. But don’t forget to practice your piano.”

He looked at me funny. “Too much opportunity cost,” he mumbled before running out to go play with his friend Rian. He might have understood the concept after all. I hope.