No. 6 · Decisions · Economics
Opportunity Costs
The true price of any choice is the best thing you gave up to make it.
In the Almanac
“Decca turns down the Beatles”, 1962 · “Ørsted”, 2017
Both stories in full, three ways to use it and where it misleads.
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Questions
What is Opportunity Costs?
Opportunity Costs are the value of the next best alternative you give up when you decide. Every yes is quietly a no to something else, whether that is time, money, energy or attention.
How do you use Opportunity Costs?
Instead of comparing an option with doing nothing, compare it with the best other use of the same resources. Price your meetings in hours per year, weigh purchases against real alternatives, and protect time for the people who matter.
When does Opportunity Costs matter?
Opportunity Costs is one of the 35 mental models for decisions, the situations where you ask: Which way should I go? Within that, it belongs to “Weighing the options”, alongside A/B Testing, Back-of-the-Envelope Calculation and Cost-Benefit Analysis.
What is an example of Opportunity Costs?
Two stories show it at work: Decca turns down the Beatles (1962) and Ørsted (2017). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Opportunity Costs?
Cost-Benefit Analysis, Sunk Cost Fallacy and Preserving Optionality. Opportunity Costs itself comes from economics.