Opportunity Cost Calculations - Deepstash

Opportunity Cost Calculations

Many people and organizations fail to take into account the various opportunity costs.

  • We need to actively question ourselves about the alternatives that may be missed out by deciding on a particular option.
  • The often neglected cost of waiting too long is also a decision that can incur a significant amount of opportunity cost, as we lose the time window to take action, losing the better option due to delay and inaction.
  • Not taking an action is also a decision that needs to be evaluated, just like other options.

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Overestimating Opportunity Cost

Certain external constraints make us overestimate the opportunity cost, as we start to imagine all the foregone options as a missed opportunity and start to see the situation irrationally. This can cause a negative emotional and psychological reaction, like regret.

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Opportunity Cost

An opportunity cost is the potential ‘alternative’ or benefit that is forfeited when one chooses a particular option.

The other, foregone option, if it is lower than other companies, is the key factor in this trade-off.

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When mulling over multiple choices, the quality of any option cannot be assessed in isolation from its alternatives. The price you pay (or the sacrifice you make, or the benefits you give up) for doing what you’ve chosen to do instead of doing something else is the opportunity cost.

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