opportunity cost
Every choice has a hidden cost: what you gave up to make it. The true cost of anything is not just what you pay, but what you could have had instead.
key principles
- 01
There is no free lunch
Every resource—time, money, attention—spent on one thing cannot be spent on another. This is always true.
- 02
The unseen matters
What you chose is visible. What you gave up is invisible. But the invisible cost is real.
- 03
Compare to next best
The opportunity cost is specifically the value of the next best alternative, not just any alternative.
- 04
Sunk costs are irrelevant
Past investments shouldn't affect future decisions. Only compare forward-looking costs and benefits.
applications
The Hidden Cost
Bastiat articulated the concept in his parable of the broken window: we see the economic activity created by fixing the window, but we don’t see what the money would have bought otherwise. The unseen cost is real, just invisible.
Every choice implies a rejection. Every yes is a no to something else. Understanding opportunity cost means seeing the invisible alternatives in every decision.
Key Quote
“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” — Frédéric Bastiat, That Which is Seen and That Which is Not Seen