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I find it frustrating that many tech people (sorry for being general, but I see it a lot on this site and other communities) have a general sense of disdain for MBA/BBA-educated individuals, and then write multi-paragraph blog posts about opportunity cost, which is a 101 concept in any economics or business curriculum. I'm not trying to derisive of Jack -- it's a good post -- but this is not some grand insight. This…
Earlier quoted context omitted.
Opportunity cost is an important idea to keep in mind. However, there are some other factors which are also important. For one, money now is worth more than money later . It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. Another is that time worked is not necessarily linearly proportional to productivity. Perhaps for th…
This can actually be captured with the simple recognition that opportunity cost is not entirely monetary, but rather it's about value . "Money now" has more value than "money later". This is described using a http://en.wikipedia.org/wiki/Value_function > It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. It's called http…
For larger amounts of money, it is also important to consider the time value of money: http://en.wikipedia.org/wiki/Time_value_of_money
There is more to life than optimizing everything based on cost. That walk from the more distant hotel is healthy for you, and you get to enjoy the scenery. Sometimes it's good to think of time as having monetary value because it gives you perspective, but also sometimes it's good to forget it and actually enjoy life.
Sometimes stochasticity makes better decisions than we possibly can. Do not limit yourself to logic alone—it describes such a very small subset of human possibility.
There is more to life than optimizing everything based on cost. That walk from the more distant hotel is healthy for you, and you get to enjoy the scenery. Sometimes it's good to think of time as having monetary value because it gives you perspective, but also sometimes it's good to forget it and actually enjoy life.
Ironically, it can often turn out that the latter is, in fact, more optimal. Sometimes stochasticity makes better decisions than we possibly can. Do not limit yourself to logic alone—it describes such a very small subset of human possibility.
Earlier quoted context omitted.
Ironically, it can often turn out that the latter is, in fact, more optimal. Sometimes stochasticity makes better decisions than we possibly can. Do not limit yourself to logic alone—it describes such a very small subset of human possibility.
This. I faced an interesting paradox a few years ago when I first learned about opportunity cost. I found myself explicitly analyzing every trivial decisions in terms of opportunity cost and eventually realized that constantly thinking about opportunity cost was costing me opportunities. In other words, the opportunity cost of caring about opportunity cost is most often not worth it.
How I describe this to the gaming generation is through a common shared experience. Remember that one time you spent 3 hours trying to beat that one level in that one game, then finally got frustrated and gave up, only to return the next day and beat it on your first try in 3 minutes? Zen.
The paradox makes no sense logically, yet it exists.
Moral: don't get in your own way—stop thinking too much about why and how and just do!
This is the concept of opportunity cost[1], and along with time preference and marginal utility, it is one of the foundations of praxeological thought. Understanding OC changes your entire perspective on the world, makes you realize why rich people don’t recycle as much, why first class flights exist, and why people with higher salaries are more likely to have chauffeurs (so they can not waste time on the act of driv…
Opportunity cost is an important idea to keep in mind. However, there are some other factors which are also important. For one, money now is worth more than money later . It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. Another is that time worked is not necessarily linearly proportional to productivity. Perhaps for th…
The second one is 'marginal utility', which is perhaps best described as the difference in value of a litre of water to a dehydrated man in a desert vs. a man who owns a desalination plant.
Unfortunately, before the scheme could come to fruition, there followed a series of unfortunate events -- including but by no means limited to the collapse of the world economy -- which convinced said corporation that an even more appealing way to optimise their employees' value creation was to cancel all capital expenditures and sack a few thousand people. And the rest is history.
There is of course another parameter in the trade-off which the author ignores: optics. Depending on one's position, it may be important to be seen to be frugal. For one thing, as @gfodor says above, 'frugality breeds more frugality' [through the organisation etc.]. For another, I would think that dispensing with frugality inhibits the moral authority of a person in authority who must periodically cut costs, cancel bonuses etc. etc.
It all gets quite fuzzy, at least if you're working on a salaried basis rather than billing hours. My own experiences are that the opportunity-cost ROI often doesn't materialize, because spending the extra $X to save Y minutes of time does not really result in me getting more done that day, since productivity bottlenecks tend to be things other than the number of minutes in the day. Plus, you can get a lot of thinking and planning done on the subway. :)
This is the concept of opportunity cost[1], and along with time preference and marginal utility, it is one of the foundations of praxeological thought. Understanding OC changes your entire perspective on the world, makes you realize why rich people don’t recycle as much, why first class flights exist, and why people with higher salaries are more likely to have chauffeurs (so they can not waste time on the act of driv…
> when the economic output they would produce in that time pays for the driver, the car, the fuel, and still leaves profit Is that really true? From a certain point the economic output is produced regardless of what that guy is doing, he is just setting future directions. Does Tim Cook generate $2.9 million every time he takes a dump? I don't think so. I have a better explanation: convenience and satisfaction.