Wednesday, November 7, 2018

Opportunity Cost

I'm writing this right before catching my bus from Ipoh to Malacca. I have 30 minutes so I will spend 30 minutes. If I had more time I'd probably waste it. So this is perfect. Just enough time to quickly touch on the concept of opportunity cost.

When I was quitting my job. I was explaining to my friend about how, even though I had cut down my expenses drastically, it was really expensive for me. The reason is that quitting your job has another cost associated to it which is opportunity cost: the cost of the salary that you aren't receiving anymore. So I was giving up quite a good amount of money to pursue something else.

However, it wasn't until much later after that conversation that I realized opportunity cost cuts both ways. If I was still at my job working, I'd be thinking about the opportunity cost I was giving up (my time as I was getting older, the different experience) by continuing to stay at my job. There is cost of missed opportunity to everything we do.

There's definitely a grass is always greener mentality to this as well. We fall into the trap of thinking that the other opportunity is better than the one we are in.

And there's one last observation that I want to point out. Its easy for use to be trapped by the opportunity cost. For example, if you were to only think about maximizing money, and if you were making a fairly good salary like I was at my engineering job, then if you wanted to maximize it then the rational decision would be to work in that job for as long as possible. And this is the decision that traps many of us. As we get paid ever more and rise in the ranks, we find the decision to change harder and harder. There is so much sunk cost it would be crazy to give that up, even if we notice that our path might not be the right one. "Oh well, we are already this far and it isn't that bad, might as well keep going"
Its easy to hold on to that idea of maximizing profit and we end up with a life that we are unhappy with.