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Never attribute to stupidity what is adequately explained by opportunity cost

erikbern.com

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Re: Never attribute to stupidity what is adequately explained by opportunity cost

#41

Post by doodpants »

sfvisser wrote: post #32

I don't get the use of the terminology here. Opportunity cost is the cost associated by not reaping the benefits of an alternative not being picked. This is a cost from the perspective of the party making the choice. So in this story, 'opportunity cost' is not an explanation why something didn't happen. It is a side effect of something not happening. You could say the real opportunity cost in this story is the startu…

Yes, but another way of looking at it is that if you prioritize A over B, it's because the opportunity cost of not doing A would be greater than the opportunity cost of not doing B. So "prioritization" is another way of saying "minimizing opportunity cost".

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#42

Post by tehlike »

bernulli wrote: post #40

This is then made even more frustrating due to the asymmetry when the opportunity cost for you for not having your problem fixed is much higher than for the person you are trying to reach. Or, more succinctly, asking `Who has the problem?' has helped me over the years to adjust my expectations, because more often than not, it is me who has the problem, and not the person I am reaching out to.

The part that sucks the most is when opportunity cost of not doing something is "globally" high, but the other party only optimizes locally for themselves.

You will see, especially at work, when you have something that makes a ton of money, but people will be uninterested because it doesn't benefit them as much. At that point you require lots of escalations.

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#43

Post by tehlike »

chris_st wrote: post #22
mcqueenjordan wrote: post #6

This is such an important concept. I was just explaining this to product/leadership the other week: "It's not a matter of convincing me we should do this. Obviously, we should. But we also have a hundred other things that we should do, and a few dozen things that we need to do. So it's not a discussion of 'should we'; it's a discussion of understanding how important this thing is in relation to all of the other thing…

I had a kind of... manipulative co-worker who often tried to work around the Product Owner. He'd come into my office and ask, "Can we do ?", hoping to trigger my inner engineer to be interested in how to solve that problem. He finally got tired of me saying, "Given enough time and resources, yes, we can do pretty much anything! Talk to about what we SHOULD do."

And probably the moment you do it, he'd take all the credit from you too.

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#44

Post by ReactiveJelly »

harimau777 wrote: post #39

The issue that I see is that the benefits of implementing something the "stupid" way (e.g. it's faster or easier to implement) are often enjoyed by different people than those who have to bear the associated future pain.

Then it becomes an externality.

Why should sales stop littering when development is the one cleaning up the highway?

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#45

Post by air7 »

Wow.

Well put. I'm going to use this. It feels quite true that when analyzing the behavior of any entity (and to a lesser degree, a person) it's rare to take time into account. If something wasn't done it's either stupidity, malice, or something-I-don't-understand. It's refreshing to think that it might just not have happened yet, and perhaps never will because there will always be more important things in the pipeline.

So perhaps this idea is a corollary of my own pet aphorism: "Things take way, way, waaayyy longer than you'd think". Everything seems simple and easy until you set to actually do it. The kicker is that even looking back on my own work, I sometimes can't understand "What took me so long?!"

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#46

Post by logicallee »

sfvisser wrote: post #32

I don't get the use of the terminology here. Opportunity cost is the cost associated by not reaping the benefits of an alternative not being picked. This is a cost from the perspective of the party making the choice. So in this story, 'opportunity cost' is not an explanation why something didn't happen. It is a side effect of something not happening. You could say the real opportunity cost in this story is the startu…

maybe this will help: you see a man rushing along and he notices a twenty dollar bill. He starts moving toward it but looks at his watch and rushes off.

You pick the bill up, and it is indeed $20.

Why didn't the man pick it up? It's free money.

It's true that it's free money. However, the man might have something that he's rushing to that in that instance, he's decided is worth more than $20. Perhaps it's a very important job interview, for example.

So while it is a free $20, it also costs him a job. that's why he can't afford to pick it up.

You don't have the same opportunity cost. For you the $20 didn't potentially cost a job. So you pick it up.

Developers are perhaps in a similar situation.

Let's say there is a bug that is so horrendous, every month 5% of your userbase leaves saying "We are leaving because you don't do x." Another 5% of your userbase is on forums desperately asking for x, saying they will start paying you the moment you do it.

Why don't you pick up all these customers? All you have to do is x!

Perhaps the reason you're not picking up these customers is because you have another feature that increases your reach by a factor of 5. So, although you could retain 5% of your users who are leaving, and pick up 5% of users who would join, you have another 500% of your users who you are buying by investing your time in doing y instead of x.

You can't "afford" to do x, because then you wouldn't be doing y.

In essence, you are rushing to an interview instead of picking up the bills your customers and potential customers are waving in front of you hoping you'll take it.

Is your analysis of the opportunity cost rational and correct? Maybe not.

But this mentality does explain why a whole lot of software is extremely buggy and has forums full of people asking for simple bug fixes and features, all of which are ignored while the company pursues new customers. The company feels they "can't afford" to incur the opportunity cost of fixing their bugs, because they'd be losing out on the new customers they could be getting by focusing on new features instead.

This is also why making a big scene in the news gets a bug fixed very fast. Now you're not just "paying" with your dollars, which the company would ordinarily snub. you're paying with the dollars of all the new customers who are reading about their response in the press; and the company cares a lot more about those new customers than it does about you. so it fixes your bug, because now it can't afford not to.

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#47

Post by jasode »

sfvisser wrote: post #32

I don't get the use of the terminology here. Opportunity cost is the cost associated by not reaping the benefits of an alternative not being picked. This is a cost from the perspective of the party making the choice. So in this story, 'opportunity cost' is not an explanation why something didn't happen. It is a side effect of something not happening. You could say the real opportunity cost in this story is the startu…

>So in this story, 'opportunity cost' is not an explanation why something didn't happen. It is a side effect of something not happening.

>You could say the real opportunity cost in this story is the startup teams having a bunch of unhappy users. The explanation for the missing features is simply: they did something else.

The "opportunity cost" _is_ an explanation and your suggestion of shifting the label "opportunity costs" to apply to something else such as "unhappy users" is just adding to the misinterpretation.

Let me try to bridge the gap between what the author wrote and your critique of it...

Think of "explanations" as different levels:

- level 1: Why is feature X missing? Because they did something else.

- level 2: Why did they do something else? Because of opportunity costs.

- level 3: Why are there opportunity costs? Because no company has infinite budgets, infinite programmers, and infinite time, and therefore, they must choose what _not_ to work on.

- level 4: Why does the company not have infinite ? Because that's what economists, philosophers, theoretical physicists, etc have observed in the visible universe so far and that's the framework of reality we're stuck with for the _practical_ purposes of running a company on Earth.

The level 1 cause & effect is "correct" and "true" but also trivial, obvious, and uninteresting.

The level 2 cause & effect is what the author is trying to explain.

The levels 3 and 4 start getting into metaphysical discussion which might be intellectually entertaining but hard to apply to real life.

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#49

Post by jefftk »

firebird84 wrote: post #19

His statement about bigcos doesn't really jibe with mine. Bigcos are just as concerned with opportunity cost as startups, at least if they're concerned about earnings at all or are run well. You will not have headcount to attack all the problems you have at once, and you'll constantly be chasing revenue/COGS-R opportunities instead of fixing those UI glitches QA found 2 years ago that have workarounds. The day you st…

Startups will often have many obvious relatively simple things they're not doing. They're moving very quickly, but they have a small team and have to ruthlessly prioritize.

A larger company is generally not moving as quickly, and the scale of the things that they're choosing not to do for opportunity-cost reasons gets much smaller.

I worked for a money transfer startup at one point. You could use it on Android and iOS but not on desktop/web. We just hadn't gotten to it yet. If they're successful but still mobile-app only in five years, though, I'll expect that it's for reasons like "we looked into web but fraud rates were much higher" instead of it just being a matter of priorities.

Re: Never attribute to stupidity what is adequately explained by opportunity cost

#50

Post by ghaff »

wefarrell wrote: post #27
JanisL wrote: post #20

I worked with a company last year that consistently made poor decisions due to lack of resources, especially time. Sometimes "opportunity cost" was used as an excuse for a lot of things. Now sure if you have a few different immediate options and a lack of capacity you will be forced to choose certain options and ignore others. Scarcity is a real thing and I'm not arguing otherwise. But the bit that might be classifie…

It sounds like they were focusing on the urgent at the expense of the important: https://www.eisenhower.me/eisenhower-matrix/

Yes, although note in the Eisenhower matrix, you "delegate" urgent but less important tasks. If there's no one to delegate to, that falls apart a bit. Now, if you're so under-resourced that you're doing nothing but putting out fires, that's a problem. And you probably have to add resources (of whatever type including delegating to a third party), fix root causes, or decide that what you're treating as urgent really isn't.
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