How Opportunity Cost Can Help You Make Better Decisions

• Imagine facing the decision of painting a wall in your room green or blue. The paint of both colors cost the same, and both look equally good. 
• After giving it a little thought, you realize that by painting your wall blue, you’d probably not be able to hang your favorite poster because the colors wouldn’t match. Some of the furniture you had previously picked out would also have to be given up because of the color mismatch.
• A green wall, on the other hand, would suit the poster and the furniture you picked out just fine. With your knowledge of what you had to give up if you chose the blue paint, you decide to go for the green.

Suppose you’ve just learned how to do your taxes. You estimate that it will take up about two hours of your time if you did it yourself. Your cousin, who happens to love doing taxes, offers to do it for you for $50, with a free tub of ice cream.

If you rejected your cousin’s offer, you’d save yourself $50. But it’d cost you two hours of your time doing whatever you wanted, the actual work of doing your taxes. If you took your cousin’s offer, you'd be getting your taxes done for you. Of course, you’d have to pay her $50 — that’s the cost.

Depending on how much you valued your time, and how much you valued money:

• If you felt that an hour of your time was worth only a dollar (and two hours of your time is worth two dollars), it would probably make sense for you to do your taxes if you felt neutral about it.
• If you felt that an hour of your time was worth $50 on the other hand, letting your cousin do your taxes would probably make pretty good sense since you’d essentially be getting back $100 worth of time for an expense of $50.

Use opportunity cost to find the monetary value of your time.