On the Concept of Opportunity Cost

Have you ever played The Game of Life? The classic board game has since been adapted to all sorts of different versions, including iterations on video game consoles. The basic premise of the game is simple. You make your way through your fictional life, getting a job, getting married, having kids, and hopefully reaching retirement with the most money possible. That’s how you win.

It’s obviously a gross oversimplification of how real life works, but the board game very clearly illustrates the notion of opportunity cost. The first decision you make in the game, right off the bat, is whether you want to go to college or you want to start working right away.

If you choose to go to college, you skip out on a few turns while you “go to school,” but you are afforded a better chance at a better salary when you graduate. That’s loosely accurate when it comes to real life, because college graduates on average do out-earn their non-college educated counterparts. If you choose to start working, you don’t miss any turns, but the salary you get will likely be less than the player who chooses college.

In real life, I chose college. In the board game, I always pick work because the guy who choose college usually ends up losing. Like I said, the board game is necessarily representative of real life, but it illustrates an important point.

By choosing to go to school (in hopes of getting a better salary), you lose the opportunity of the first few turns of the game. The players who choose work get a “head start,” even if they start out with a lower salary. By choosing one, you lose the other. That’s opportunity cost. Everything that you choose to do has an indirect cost, because it means you are foregoing all other possibilities. By choosing to turn left, you necessarily lose out on everything that turning right could have provided you (and vice versa).

Above all else, the most valuable resource you have is time. How you choose to spend that time has a direct (and indirect) impact at any future shot at success. Let me explain with another example.

A friend of mine really wanted to get a Nintendo Switch for his sons. The new video game console was in hot demand, so it was hard finding any in stock. He then heard that a store not only had several in stock, but they were also putting them on sale for about $40 or $50 off. Huzzah, right? The catch was that this store was all the way across town and they weren’t willing to take any reservations; it was on a first come, first served basis.

So, in order for my friend to buy the Switch from this store, he’d have to wake up extra early in the morning. He’d have to drive all the way across town, which depending on traffic could take up to an hour. And then when he got there, he’d have to hope he was one of the first few people in line. There were no guarantees. But he could “save” about $50 for his troubles.

Alternatively, he also noticed that Amazon just received a fresh supply of consoles. He’d have to pay full price and he’d have to wait a couple days for shipping, even with Amazon Prime, but it meant he could go through the whole transaction on his smartphone with just a few quick taps. The decision was an easy one. He bought from Amazon and he has no regrets.

Instead of wasting at least two hours of his time driving to and from the store, instead of risking the possibility of not being able to buy it at all, instead of spending who knows how much on gas, he spent that time (and money) in more fruitful ways. Maybe he worked on his blog or his other online marketing efforts, potentially earning well more than the $50 he would have “saved” by going to the store.

Or maybe he got to spend (at least) a couple of “extra” hours of quality time with this family. I’d say that’s well worth fifty bucks, wouldn’t you?

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One thought on “On the Concept of Opportunity Cost”

  1. ahmadyani says:

    There are various types of video games. You just have to choose wisely. Whether the game is just to spend time or the game can improve your own skills or to brainstorm the mind.

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