Comments on: Opportunity Costs

By: amnigos

amnigos — Thu, 12 Aug 2010 18:47:00 +0000

Ok, I think this is the best and short article that summarizes opportunity costs than anything else I came across in recent times!

By: scottsemple

scottsemple — Thu, 22 Jul 2010 01:15:58 +0000

There’s one form of opportunity cost that more people should pay attention to more often: spending versus investing. An easy way to calculate the cost is to use a conservative growth rate and then calculate the future cost of present consumption.If a portfolio could average 7% per year over a lifetime, then capital will double every ten years. That being the case, if we assume financial independence is desirable in our 60s, then every dollar we spend up to our 60s gives us an opportunity cost of 2x per decade.So someone in there 20s, when thinking of spending versus investing should use a multiple of 16. (Starting in our 20s, four decades of doubling creates a factor of 16.) Likewise, someone in their 30s should use a factor of 8, someone in their 40s, 4; 50s, 2.So a the future cost of a $2 coffee costs a 20-year-old $32 future dollars; a 30-year-old, $16 future dollars; 40yo, $8; 50yo, $4.That being the case, how does that color the opportunity cost of our current consumption? How much do the fancy shoes and shiny, new car really cost us?Here’s a great cartoon to illustrate the point:http://www.geekculture.com/…

By: Guest

Guest — Thu, 22 Jul 2010 01:10:25 +0000

There’s one form of opportunity cost that more people should pay attention to more often: spending versus investing. An easy way to calculate the cost is to use a conservative growth rate and then calculate the future cost of present consumption.If a portfolio could average 7% per year over a lifetime, then capital will double every ten years. That being the case, if we assume financial independence is desirable in our 60s, then every dollar we spend per decade away from our 60s gives us an opportunity cost of 2x.So someone in there 20s, when thinking of spending should use a multiple of 16. (Starting in our 20s, four decades of doubling creates a factor of 16.) Likewise, someone in their 30s should use a factor of 8, someone in their 40s, 4; 50s, 2.That being the case, how does that present the opportunity cost of our consumption? How much do the ten-syllable coffee, fancy shoes and shiny, new cars really cost?Here’s a great cartoon to illustrate the point:http://www.geekculture.com/…

By: Donna Brewington White

Donna Brewington White — Wed, 21 Jul 2010 20:55:15 +0000

In reply to Tereza.

Somehow I’m not getting all my responses via email — yoohoo Disqus!Not kooky at all…at least not to me. My husband and I occasionally “deaccumulate” in recognition of this principle…but not as often as we should.

By: Mike

Mike — Wed, 21 Jul 2010 19:54:28 +0000

In reply to JLM. JLM,Thanks again for taking the time to chat with me, and thanks for the kind words. "Winning the Irish Sweepstakes while being Irish" is a complement, right? I'm an Aggie so I need some help from time to time.Everyone else,Take JLM up on his offer if you can. Luckily for me, his expertise is exactly what I needed for my business but his business savvy would help anyone currently reading this thread.

By: Nikhil Nirmel

Nikhil Nirmel — Wed, 21 Jul 2010 12:32:36 +0000

I wanted to toss in last minute comment.I think there is one area that opportunity cost is very important, yet widely ignored.That is in the area of choosing who to favor when you as a company have multiple stakeholders, both defined and undefined.I could write an essay on this (I have, I guess), but I’ll just give one example:Let’s say I have the opportunity to reduce the quality of my product (say t-shirts) in a way that increases my overall profit (the amount of fewer t-shirts sold isn’t outweighed by the profit gain of the cost-reduction). Oftentimes, you’ll here people say: you shouldn’t do that, because that isn’t good for the customer.Let’s make a seemingly tangential assumption that we can save lives in the third-world with money. Let’s say vaccinations to cure a disease cost $5 a pop.Let’s also make the assumption that we care more about a person not dying prematurely than we do about a person having a slightly thinner shirt.If you don’t opt for the added profit when you could have saved lives, your decision to ignore a profit-maximizing opportunity is not unlike murder.More broadly, my argument is that whenever we choose not to take an action that increases profit, when we could have used it for a cause that matters more than the gain accrued to whoever gains from our inaction, then we are committing a small moral crime against humanity.Yes, this is a bold claim, but if you think about it, you’ll realize that there’s nothing crazy about this line of reasoning.

By: Anthony Ortenzi

Anthony Ortenzi — Wed, 21 Jul 2010 04:24:52 +0000

In reply to mrcai. I read about someone's preference for using resources in groups of 12, because they can be evenly distributed among 1,2,3,4, or 6 tasks. I think it's interesting to consider it the other way around -- if you have relatively interchangeable resources which may scale up or down, organizing tasks into 12 equal groupings might simplify scaling up or down with people.

By: Guest

Guest — Wed, 21 Jul 2010 03:54:38 +0000

There’s one form of opportunity cost that more people should pay attention to more often: spending versus investing. An easy way to calculate the cost is to use a conservative growth rate and then calculate the future cost of present consumption.If a portfolio could average 7% per year over a lifetime, then capital will double every ten years. That being the case, if we assume financial independence is desirable in our 60s, then every decade away from our 60s gives us an opportunity cost of 2x.So someone in there 20s, when thinking of spending should use a multiple of 16. (Starting in our 20s, four decades of doubling creates a factor of 16.) Likewise, someone in their 30s should use a factor of 8, someone in their 40s, 4; someone in their 50s, 2.That being the case, how does that present the opportunity cost of your consumption? How much do the ten-syllable coffee, fancy shoes and shiny, new car really cost?Here’s a great cartoon to illustrate the point:http://www.geekculture.com/…

By: Guest

Guest — Wed, 21 Jul 2010 03:50:22 +0000

There’s one form of opportunity cost that more people should pay attention to more often: spending versus investing. An easy way to calculate the opportunity cost of spending over investing is to use a conservative growth rate and then calculate the future cost of present consumption.If a portfolio could average 7% per year over a lifetime, then capital will double every ten years. That being the case, if we assume financial independence is desirable in our 60s, then every decade away from our 60s gives us an opportunity cost of 2x.So someone in there 20s, when thinking of spending, should use a multiple of 16. (From our 20s, four decades of doubling creates a factor of 16.) Likewise, someone in their 30s should use a factor of 8, someone in their 40s, 4; 50s, 2.That being the case, how does that present the opportunity cost of our consumption? How much does the ten-syllable coffee, fancy shoes and shiny car really cost?Here’s a great cartoon to illustrate the point even better:http://www.geekculture.com/joyoftech/joyimages/…

By: Tereza

Tereza — Tue, 20 Jul 2010 20:17:48 +0000

In reply to Donna Brewington White. At risk of sounding kooky, professional organizers are replete with stories of people finally throwing out tons of their old junk and suddenly great things start happening.As if making the room available allows for better, on-strategy things to come in the door.