My powerful knowledge series aims to help you:
1. Go beyond the limits of your personal experience.
2. Better explain and understand the natural and social worlds.
3. Discover new ways of thinking in systematic ways.
4. Engage in current debates of significance.
As part of my content creation strategy, I ask myself a key question before I produce anything:
Is there anything other content I should be producing instead of this?
This question is motivated by my first ever economics lesson, where I learnt an invaluable piece of powerful knowledge – the opportunity cost.
The typical way of looking a cost is time or monetary value. For example:
- A loaf of bread costs £1
- It will take me 1 hour to iron my shirts
But the true cost of anything is the alternative foregone. This is what you could have purchased with the money or done with the time – this is called the opportunity cost and emphasises that every decision has a trade-off.
The loaf of bread does cost £1, but a better way of assessing the cost is what else you could have done with that £1. Similarly, the real cost of ironing shirts is what you could have done with the hour. The size of the opportunity cost will therefore depend on the price of alternatives and how much you value other uses of your time.
Back to my original example. The cost of writing this post wasn’t the time it took me to write it, but what I could have produced instead (or any other use of my time). If I’ve allocated time to create content, I want to make sure I am working on the best content ideas in my backlog.
I made a decision that helping others to think in terms of opportunity costs was worth it 😉
Other real world examples:
- Watching TV is free? Nope! An hour spent watching TV costs an hour that could have been used to do something else like go to the gym etc. This is why economists say “there is no such thing as a free lunch”.
- University costs £9k a year. Nope! You could have spent that year earning money instead of studying. Let’s say you could have secured a 20k role instead, then the real costs of a year at university is £9k + £20k = £29k.
- An iphone costs £900. Nope. An iphone costs a £600 Samsung + £200 monitor + £100 pair of trainers. In this case I know what decision I would make…
Will you change any spending decisions or use of your time now that you think in terms of opportunity costs?
Further reading: