Opportunity Cost

What Opportunity Cost means

Opportunity cost is the value of the best alternative given up when a scarce resource, whether money, time, attention or land, is committed to one use rather than another. The true cost of a choice is not what was paid but what could otherwise have been had. Owning this changes how we read a price tag, and especially a price tag of zero. We stop asking what something costs and start asking what the best other use of the same hours or pounds would have been. We notice that every choice is a choice over something else, and that the something else is the cost. Before, cash sitting in the account was safe and costless. After, holding it costs the best thing it could have done every single quarter.

Opportunity Cost examples: where it shows up

• At work: a founder spends their own hours on tasks anyone could do, because their time has no invoice, and the work only they could do goes undone.
• With money: a company holds retained cash because holding feels free, while the return it could have earned or paid out is spent every day in silence.
• In the news: a government calls a project cheap because the land was already public, leaving out the housing or the sale that the land will now never become.

Where it sits

Open to walk. See where Opportunity Cost sits on the sky →

Nearest on the sky

• Comparative Advantage
• The Dichotomy of Control
• Exit, Voice and Loyalty
• Memento Mori
• Optionality
• Preferred Indifferents

A filled dot marks a star that is already open to walk.