The Problem with Opportunity Costs

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18 Responses

  1. Avatar krogerfoot says:

    Opportunity costs and the sunk-cost fallacy can be a helpful way to get a handle on making big decisions, or they can be just-so stories to justify doing what you wanted to do all along.

    The thing about careers in the arts, or most things, is you just never know. When I was in college, everyone in the know kept insisting that a liberal-arts education was what companies were looking for in candidates. This idea seems to be considered obviously wrong now, and depending on your politics, we were either naive or elitist to ever believe it. (But was it true at the time? In the late 80s/early 90s, were HR directors saying they were looking for well-rounded educations on resumes, but really tossing them in the trash? Or were they hiring people like us, until things changed and those HR directors were themselves schitzcanned? I guess I could research that, but I have some tacos to eat.)Report

  2. Avatar Stillwater says:

    Thinking about the opportunity costs is just too hypothetical.

    I read all the way to the end for that? Sheeeet.Report

  3. Avatar James K says:

    The problem with throwing your hands up and saying “it’s all to hard” is that doesn’t actually improve your decision-making. Whatever your opportunity cost is, it certainly isn’t 0. Yes in practice it is very hard to work out the costs of benefits of any action, and that includes opportunity costs, but that’s a reason to approach your best estimate with humility and test your assumption, not just to give up.Report

  4. I agree with @james-k and @krogerfoot . I’ll add this: When you’re considering making a decision, the outcome of that decision is just as hypothetical as the opportunity cost is. Only after the fact–perhaps years after the fact–when you’ve made one decision and not one of the several others available to you, does the opportunity cost become much more hypothetical than the road taken.Report

  5. Avatar Tod Kelly says:

    I’m somewhere in-between everyone here on the subject.

    Like @james-k I think that evaluating opportunity costs in retrospect has a certain value. I do, however, think that this value is far more limited than we imagine — or at least I do when we’re talking about life decisions.

    Part of the reason for this is that the opportunity costs of our previous life’s decisions are largely stories that we tell ourselves, and exactly what that story is probably says more about our mindset at that exact moment than it does the way our lives would have unfolded if only we had chosen X.

    Indeed, the very reason we think our lives turned out the we they did is because we chose A and not B at some crossroads — rather than it being due to a never-ending series of infinite variables, some of which we made conscious decisions about, more of which we made unconscious decisions about, and even more than that which we never had a choice about at all — is itself a story we like to tell ourselves to make us feel more in control of everything than we truly are.

    I believe that the truth is that there is very little Saul can learn about how his life would be different by weighing the opportunity costs of not going to law school, for the very reasons he states in the OP. Because there is no way for him to know what that life would have been, really.He might have been richer, or poorer, or happier, or depressed, or basically exactly where he is now but with a different job title. What Saul *can* do, though, is pay attention to what his gut is telling him about those imagined opportunity costs when he looks back, because there probably is something important about his life, his desires, and both his fulfilled and unfulfilled needs to be learned there, and that’s something he can truly use in future decision making.

    The rest of it, though… I think it’s folly.

    That being said, trying to weight opportunity costs for things you plan on doing in the *future* seems the very definition of wisdom.Report

    • Avatar Tod Kelly in reply to Tod Kelly says:

      I don’t have the book here now because I’m on the road this morning, so I can’t quote this exactly, but this conversation here is reminding me of a conversation between Mustrum Ridcully and Granny Weatherwax in Carpe Jugulum.

      Having been paramours in their youth, Ridcully begins to wax about the opportunities missed because they went off to learn magic rather than get married and build lives together. After he’s been doing this for a while, Granny asks, “Well, what about the fire?” Ridicule, confused, asks which fire she’s talking about, and she says, “The one that started that night years ago when we were sleeping and killed us both.”

      She goes on to list all kinds of possible futures they might have had, any of which might have been the ultimate outcome to their staying together and being wed. That Ridcully looked at the one happy-lives-together scenario and believed it was what would have happened said nothing about what actually would have happened, it only said something about Ridcully on that day that he was thinking about it.Report

    • Avatar Glyph in reply to Tod Kelly says:

      As explained in the first para of the OP, the intent of my original comment was not necessarily for Saul (or anyone) to re-evaluate his own life or second-guess his past choices; it was because Saul is constantly hitting on how critical it is that everybody gets enough post-HS education (and the “right” kind of it); yet he also often talks about how he is not completely happy about where he is professionally after 10 or more years of post-HS education (university + grad school + law school, a lot of it probably considered fairly “high-end” education).

      I didn’t expect a post in response; I was just pointing out that dichotomy, using his own experience as an example.

      Maybe “more school” isn’t always the best answer for everyone, and opportunity costs are part of why.Report

      • Avatar Michael Drew in reply to Glyph says:

        Saul is constantly hitting on how critical it is that everybody gets enough post-HS education (and the “right” kind of it)

        Uh, taken literally can this ever remotely be a problematic position? It seems to me that @will-truman does this too; he just (maybe!!) thinks what’s right for people might be different from what Saul might. (Keep in mind that we can throw scare quotes around anyone’s account of what is the right kind of education in given circumstances, not just Saul’s.)

        Taken as I think you mean it (because it’s clearly being presented as a problematic position), where “post-HS education (and the “right” kind of it)” means (for Saul) college of some kind to exclude vocational or apprentice programs, and “enough” means more or significantly more than none, I think you might just be wrong as a matter of the record. I don’t know that Saul holds such a position, much less that he constantly hits on it.

        I’ll just say I’m skeptical; I assume it’s not worth it to you to dig through comments to try to establish this, though, if it is, knock yourself out.

        My position, which, I think is something like Saul’s, is that I think there are considerable social and individual benefits to expanding the number of people who at least get a chance to try out college that has a basic liberal studies component (like just about any two- or four-year degree program do), and that I probably value those social benefits (as I see them) more than some others do. But that’s nothing like a conviction that it’s critical everyone should get some amount X of the kind of education that we would recognize as “college,” or any other particular conviction about what everyone must do that reflects whatever the meaning of your description is. I’m not aware that Saul has such a position either.

        The view that everyone should go to college and it’s critical that they do is a rather extreme view (which I guess some people hold). The view that lots more people should be afforded the opportunity to go to college (or to try it, or something like it) and that skepticism that X persons who might be interested, or in particular discouraging them from going, are regrettable is a completely different, much more moderate position.Report

        • To be clear: I’m not saying the benefits flow primarily from the liberal studies component of all the programs (though I am probably more interested in the benefits that do flow from those than most people). The main (individual and social) benefits of any post-HS educational program come from the accumulation of skills and credentials that will be useful and remunerative down the road in life. I’m not saying I want all of the additional people I’d like to be given the opportunity to try college to major in liberal studies. Broadly, people should find fields that match their skills and career desires (of course). (And if they can advance in those fields to where they want to get to without going to college and have no personal interest in college, by all means they should skip it – opportunity costs!)

          But I do think that the personal and social benefits of exposure to ideas in the liberal arts that attach peripherally to college of almost any kind are real, and are in addition to (the bulk of) the personal and social benefits that flow from college that flow from skills accumulation and career advancement (ie. human capital development and credentialing).Report

    • @tod-kelly

      Part of the reason for this is that the opportunity costs of our previous life’s decisions are largely stories that we tell ourselves, and exactly what that story is probably says more about our mindset at that exact moment than it does the way our lives would have unfolded if only we had chosen X.

      I didn’t know you were a historian 🙂Report

  6. Avatar Mr. Blue says:

    Opportunity costs aren’t like those gods in fiction where they just go away if people stop believing in them. It may be complicated, but it has to be a part of any decision that you make. Unless you want to make stupid decisions, I mean.

    Retrospective opportunity cost assessment is less helpful. But if we’re talking about whether we made the right decision by doing A instead of B, we can’t really make that assessment without considering how B would have turned out, and considering those opportunity costs of A. And vice-versa.Report

  7. Avatar Jaybird says:

    Imagine this being said with a Scottish accent.

    “Someday you’ill find yourself looking at a fork that goes off to two muddy roads. It dinnae matter which road you take… you’ll soon be wishing you took the other.”

    Unless we’re talking about something like spending six figures on a degree in pop culture. That’s pretty avoidable.Report

  8. Avatar Road Scholar says:

    Jeez, of all the people that hang out here with any regularity, I seriously doubt that anyone can match me for time spent contemplating lost opportunities and roads not taken. (Heh)

    I mean… when I was a kid at some point we were administered some kind of standardized IQ test. My best friend (who’s now a lawyer) told me his mom said his score was 140. When I told MY mom that, she (likely wisely) wouldn’t tell me my score, but she just gave me a little smile and said, “Yours is higher.” Then years later I won an academic contest to be named “Outstanding Student in Math and Science” for Northwest Kansas, which… okay, it’s not like the same sort of thing for NYC, but it’s not nothing either. Then I graduate from engineering school Pi Tau Sigma Honors Society.

    And now I’m driving a god-damned truck for a living.

    So yeah, I’ve spent some time contemplating just what the fuck happened to lead me to this outcome. It’s certainly not what I or anyone else would have or should have expected.

    In hindsight, I can certainly see junctures where I should have turned a different direction. They’re mostly early on and involve personal life decisions not directly career related that nonetheless had profound effects on my eventual career path. Things like holding off on getting married when I did or to whom I did.

    And then I get a call from my daughter who’s starting her own life and career, the wonderful woman who likely wouldn’t even exist in those alternate realities, or from her baby sister, who’s the smart kid in her class, or from their mother, with whom I just recently celebrated our thirtieth wedding anniversary, while my friends from college who actually made the career thing work out all had to work out long-distance visitation arrangements with their kids, and… the way it all turned out doesn’t seem so awful.Report

  9. Avatar Brandon Berg says:

    Predictions are hard, especially about the past.Report