Why do we make the decisions that we make? What is life all about? What are we thinking when we say yes to something and no to something else?
It's all about cost and benefits. "Huh, what are you saying?" you remark indignantly. "I don't think of gains and losses all the time!".
Well, here's my theory - all our decisions are based on the one basic principle in economics - minimizing the opportunity cost. I have talked about this in my articles on Indian economy, but here's a fresh perspective from a personal point of view.
Before you react to that, I want to propose something Advait would say - try on a new shirt for a few mins. If you still don't like it, you can always walk away. But for now, hear me out.
Now, think of your first love. If you are married, think of the time you made the decision to accept the proposal. If you liked a girl in school, think of when you "fell in love" with her, and decided to say no to that other girl you knew liked you too. Think of the time you gave up a party, to be with your family, or vice versa. Think of the time you decided to do computers, and not medical school. Think of the time you decided to skip the exercise and sleep instead.
What were you doing? Were you considering the consequences of what you were doing in isolation, or were you really also, and maybe only, evaluating what you lost instead?
All the time, we make decisions - and in most of the decisions, the goal is to minimize the cost of opportunities we lost because of the choices we made. Out of all the proposals that came, out of all the girls (or guys) in the class, out of all the things I could do instead, out of all the careers that were open, the key is not just to make a decision about what we want, but many times, it's all about minimizing the cost of what we will lose. That is why, many times, even when the choice is clear, we refuse to make decisions - because the opportunity cost is too high! Many times, we make a decision which looks stupid, simply because, there is nothing to lose!
Next time you ask yourself why someone did what he or she did, try and find out the opportunity cost, and you will probably get your answer!
12 comments:
I understand the theory.. But I doubt if it holds true for everything, rather at every point in life. A lot of the times, decisions are influenced more by your situation, your past experiences and by your basic nature - the way you think. I wonder if every decision point in life comes with comparative options. And I wonder if people always think of the opportunity cost while making decisions. If I have to take your example, something like the person you marry - It does not depend on who else liked you or what other options are out there. It probably does and only should depend on how much you love the person you are about to marry. And that is purely dependant on the kind of experiences you have shared, and factors that are beyond any comparative analysis or influences! Same goes for the career right? Making choices out of comparisons is not how you decide you career. It has to depend on your liking, your passion. Period. No analysis. I guess, choices and decisions in life should not be related to what you might lose. In fact, that is probably the angle you should never even be looking at. I happen to believe that choices need to be made solely on the basis of what you have to gain.
In fact, when you start thinking of opportunity costs, you end up devaluing your gains to some extent. What else? You start to add to the list of things you will lose or have lost. Bottom line is - You make decisions to add to your life. The moment you start thinking of what you'll lose, you are limiting what you can gain. Because now what you desire to gain is based on that comparison and not on your decision to explore and derive as much as you can. Plus, I would hate to make decisions and wonder later of what I could have had! I would rather take the plunge. Take the plunge because it feels right. And because I trust myself to make the most out of it.
I am not suggesting that you should evaluate opportunity cost, and I am not commenting on whether it is right or wrong... I am only saying that probably, almost certainly, that is how it is! :)
Just to push the argument further, let us assume a guy proposed to you - would your answer to him be the same, IRRESPECTIVE of who else proposed to you?
Think hard on this one - it's not as straightforward as you think it is!
Is your answer definitely a YES?
That's the whole point! If someone proposed to me, my decision would be based solely on how I feel about him. Irrespective of how I feel about someone else or who else out there is available.
And If I had two people proposing to me (:)) my decision would not be a comparative one! It would depend on how I feel about each one of them. Simple.
Another question...
Case 1: You have nothing to do, and your friend asks you out for a movie.
Case 2: You have a party to attend, or a dinner with your best friend, and the same friend asks you out for a movie.
If it weren't for opportunity cost, your answer in both the cases should be the same - shouldn't it?
Really, Harsha - it's that simple? :)
Again - No It wouldnt be about opportunity cost. I will choose to be with my Best Friend and I will not ahve lost anything at all. Its simply because that's my choice. One of them is my Best Friend because I have made that choice and that person will always be my priortiy. I won't even think twice. No comparisons. Nothing lost.
On the other hand if two of my casual friends decided to spend time with me, then in all honesty, I would spend time with someone who wants to do what I want to do. Again, I wont think of what they have to offer. It would be about what I want. So.. No Cost analysis there either!
Another couple of examples...
Why is it that we are happy to spend 100 Rupees on a movie ticket, whereas a poor man would probably buy food with it, and not go for the movie? Is it not because for you and me, the 100 Rupees has no opportunity cost - we can always afford the food too. For the poor man, the opportunity cost is too high!
Now think of us investing 100 person months in MTP for competency development. What is the opportunity cost of moving those resources out into billed projects? It's the price you pay for NOT building competencies, and the decision is all about deciding if it's worth compared to the billing we are generating. Isn't it all about opportunity costs?
So in one case you go with your friend because you have nothing to lose, in the other case you stick to the dinner, because you cannot lose that by going for the movie. The opportunity cost, the cost of what you will miss if you make the decision to go for the movie, is too high.
Yaar, this is just a nice little theory I came up with - don't get so serious about it.
But really, try it with some examples, and it kinda grows on you :)
He He He...
Life always gives you choices (well, most of the times) and you get to choose, have to choose.
So I agree in principle that there is always a comparison between the options - at times, a particular option is so obviously the best that you tend to think that it was always meant to be that way.
From the smallest case of which movie to watch (or whom to watch it with), to the apparently very important whom to marry question - there will be choices and options to choose from. And a wise person will always compare and choose the one that suits him the best or the one he likes the best.
I believe, there are only "heart" related matters, if I can say so, where the logical thinking or comparing does not necessarily work or come into picture. Every person has a few people or things in his / her life that are always over and above anything and everything else.
Arati, I couldn't agree more with you..
- Neha
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