What you don’t see is as important as what you do see. Opportunity costs, costs that you don’t see, lurk in every decision. In this episode of Mentally Unscripted, Paul and Scott explain why missing those costs screws up your decision-making.
Opportunity cost is the benefit we lose by choosing one option over another. It’s a second-order thinking technique that helps gives our decisions more context so we can make better, more informed decisions.
We often fail to fully account for the costs of our choices because some of the costs are implicit, or unseen, costs. When we make decisions without accounting for those unseen costs, we’re making decisions with limited information.
We have limited resources. It’s because of this scarcity that every decision we make has tradeoffs. We must somehow reconcile limited resources and unlimited wants.