The Psychic Cost of Opportunity Lost

Daniel O'Connor  |  Integral Ventures, LLC

This discussion of psychic costs vs. monetary costs reminds me of the theory of opportunity cost often attributed to the Austrian economist Friedrich von Wieser (1889), but now also, in this fascinating article, to the great Irish-French economist Richard Cantillon (1755).

We may define opportunity cost as the cost of one choice in terms of the opportunity foregone in the next best choice.  In other words, whatever course of action is chosen, the value of the next best foregone alternative course of action is considered to be the opportunity cost incurred in the chosen course of action.

This construct helps us shift our focus from the objective monetary costs of a course of action to the subjective realm wherein alternatives are evaluated not in terms of absolute money prices but in terms of relative psychological benefits.  Furthermore, once we realize that the real cost of a chosen course of action is to be found in our subjective valuation of foregone alternatives, we may begin to contemplate the economics of our own psychology.

So the next time you find yourself overwhelmed by the dizzying variety of options to marginally enhance your state of mind with some cheap consumer good, it may help to recognize that the real opportunity cost of the choice you're contemplating may not be found in the prices of the goods you're sifting through but in the loss of whatever peace of mind you had before engaging in your costly search.

See Also:

• Freedom's Tyranny?
• Psychic Costs vs. Monetary Costs
• Market Learning Costs
• The Neuroeconomics of Time
• The Neuroeconomics of Fairness
• The Neuroeconomics of Trust
• The Economics of Sharing
• Four Sides of the Same Coin