We make many decisions every day and our criteria for making them often vary depending on our current priorities.
Sometimes the decisions we need to make can be simple or obvious, whereas as other times, there many be a number of factors we have to take into account before we can make an intelligent decision.
One factor that can helps us choose our priorities better or make decisions that will serve us, both in the short and long term, is by considering opportunity costs.
What is Opportunity Cost?
Opportunity cost is also referred to as competing interests. It’s the cost of giving up an alternate activity while a person engages in a current activity. It’s the comparison of the value of one activity against another.
Using a typical everyday example, say a person has the choice of either spending two hours of an evening watching television or spending that time learning a new skill that will help them in the future. The opportunity cost of watching television may be deemed to be high by the person compared to the future benefits of acquiring a new skill.
In that case, because the opportunity cost of watching television is higher than learning the new skill, it’s very likely the person will choose to invest that time learning the new skill.
Sometimes opportunity cost is determined by a sense of loss. A person may imagine, by doing a particular activity, they may lose something else in the meantime.
Knowing how to use opportunity cost better can speed up our decision-making process and also reduce the amount of mental energy used when evaluating options prior to making decisions.