6 ms·

Judge the value of what you have by what you had to give up to get it

121 points by imartin2k 9y ago

metabagel 9y ago
Great article about opportunity cost and trade-offs.
thaumasiotes 9y ago
This title seems like a pretty bold endorsement of the sunk cost fallacy. Does the article actually reflect that? Why would something be more valuable just because I paid more for it?
- _rpd 9y ago
  > Does the article actually reflect that? No, the author is advocating taking opportunity cost into account, which is good advice.
  - ewjordan 9y ago
    Unfortunately the title is misleading, and it makes sense that some would interpret it as supporting the sunk cost fallacy - the author is actually advocating for judging how much you should give up to get something by how much you'll value it, whereas the title has it flipped the other way.
- UncleEntity 9y ago
  > Why would something be more valuable just because I paid more for it? Because you derive more psychic profit from it?
aaronchall 9y ago
That's the cost approach to value, and directly speaking, it's a fallacy, as what you gave up is now a sunk cost. However, if nothing has really changed since you made the decision, it certainly establishes a minimum value to yourself as a revealed preference. Another is what would others give you for what you have (market value). I think the best one, that you can uniquely derive for yourself, is what is the maximum value at which you would have been indifferent to make the trade - that's the true value to yourself.
- lifeisstillgood 9y ago
  Just on your last paragraph- if I choose between apples and oranges, and am indifferent at 2 apples or one orange i see that an orange is worth two apples to me? is that your meaning?
  - aaronchall 9y ago
    Yes. If you would gladly give up one apple for one orange, indifferent at two apples for one orange, and at three apples, you'd certainly decline to trade - then an orange, to you, is worth two apples.
OceanKing 9y ago
So by that logic, is my life worthless?
- an_ko 9y ago
  To live your life, you gave up the opportunity to live someone else's. So clearly your life is worth at least as much as anyone else's. Other people seem to act as though their lives have value, though unfortunately none of them can explain why either, except perhaps by themselves observing others treating their lives with value, and circularly repeating this argument. Want to bet on this human self-worth pyramid scheme? We guarantee you a 5000% return on your investment. Eventually. Maybe. Sign here! Congratulations, your life has value now, as long as you Believe™. Your other options are (a) suicide, or (b) becoming a nihilist, which is like suicide but with more thinking.
- vinchuco 9y ago
  At zero, yes. But you're also forced to give it up[]. Strange, really. []unless we reverse aging soon
- analog31 9y ago
  Are you a middle manager? ;-) The middle managers are perpetually faced with the prospect that if they choose A, they have to give up B, which is of equal value (within reasonable error bounds). This is a very real part of their lives. They remind us about opportunity cost, which turns out to be one more thing that they can't hope to calculate. At the end of the day, the average effect of their decision making is net zero.
  - carlivar 9y ago
    This doesn't account for the time itself to make a decision. Many middle managers in organizations are not trained or empowered to make decisions quickly. This has serious opportunity cost of time. Nimble organizations make fast decisions which may have an eventual zero sum effect but at least gets there more efficiently, eh?
    - 9y ago
jadedhacker 9y ago
Cheap penicillin is very very valuable but precisely because it is cheap. Expensive penicillin would be more valuable per individual, but less valuable overall.
- thaumasiotes 9y ago
  No, expensive penicillin would be less valuable per individual, unless possession of penicillin turned into a status symbol. Whether it would be more or less valuable "overall" depends on how you define overall value.
  - jadedhacker 9y ago
    The point I was trying to get across were the different conflicting conceptions of value and how one is shortsighted.
cimmanom 9y ago
And this is why so many people born into money have no idea how fortunate they are compared to everyone else in the world.
- theoh 9y ago
  If they didn't have to give anything up to get their wealth, then it can't be worth anything? Hardly. I don't think opportunity cost is really relevant in the case you mention.
  - cimmanom 9y ago
    I don't think it's not worth anything. I think they fail to recognize the value of it because for them there was no opportunity cost. (Whereas for the parents or grandparents who earned the money, there was typically a cost in terms of, for instance, time spent with family.)
    - theoh 9y ago
      That's just one, very plausible, possible back story. (https://en.wiktionary.org/wiki/clogs_to_clogs_in_three_generations https://en.wiktionary.org/wiki/clogs_to_clogs_in_three_gener...) But some wealth is effectively a windfall. Tim Harford's point is that we aren't inclined to think about opportunity cost. It doesn't, in fact, come naturally. A life of privilege has opportunity costs too: it can be really hard for someone "well born" to acquire certain competences. And an (elective?) nerd's opportunity cost is all those things that jocks enjoy. (A ridiculous example, sorry!)
the_cat_kittles 9y ago
for some reason the first thing i think of is how in art this is probably the worst advice ever.
insickness 9y ago
Maybe better to say: People judge the value of what they have by what they had to give up to get it.
lifeisstillgood 9y ago
So my wife is worth ... every other woman on the planet. yeah that's about right ;-)
nabla9 9y ago
Some concepts in economics are so fundamental that they should be part of philosophy curriculum. Opportunity cost is one of those concepts. Scarcity forces resource allocations and choices to us. If nothing else, we can't be in two places at the same time (time is scare) so we have to make choices. How to value the cost of choice is fundamental to everything we do.
- vincentmarle 9y ago
  It would be good to realize that it’s only useful to think about opportunity costs for future problems (opportunity is in the name). Once costs have been made in the past, they should have little weight in future decision making, hence the concept of sunk cost. Decision making is also often not as cut and dry as the article suggests: once you throw probability, randomness and asymmetrical outcomes in the mix, it’s really hard to determine your true opportunity costs.
  - lostctown 9y ago
    I've had my mind on this exact point for a while. But I'm slowly realizing that I tend towards new shiny things, like many people. And sometimes that project I've been grinding on for a couple years starts to look less appealing. So I lean on the argument that, 'hey, I put a lot of time into this. I should continue.' Continuing to work on the long boring project for this reason alone technically qualifies as the sunken cost fallacy. Yet it helps me override my internal *human bug I'm experiencing. That is, we associate boredom with a lack of progress.
  - jacobr1 9y ago
    This is when the concept of a "discount function" comes into play
- deleted 9y ago
  [deleted]
JoeAltmaier 9y ago
Its very easy to add up everything you don't have, and see that it's larger than what you do have. The true 'opportunity cost' is adding up what might have been, weighted by the probability of it actually occurring. Very hard to calculate. Makes the advice in the article interesting but largely moot. Compound it by people being generally terrible at recognizing true probabilities. "I could have been a famous musician! I gave up on my dreams!" This failure is responsible for 99% of the folly in life - playing the lottery, not wearing seatbelts, not committing...
- tvanantwerp 9y ago
  I don't think that's really the point being made here. Opportunity cost is a useful thought exercise for all kinds of decisions, not just "Should I follow my passion to become an underwater basket weaver?" type questions. I've found it very helpful to consider what opportunities I'm giving up whenever I'm deciding on a course of action, even if it's simple like: "If I go out drinking with friends tonight, I'm giving up rising early tomorrow and feeling good."
justherefortart 9y ago
Lol this is nonsense. Judge the value of what you have by what someone else is willing to pay for it.
timeisbounded 9y ago
Whenever i purchase something i think about how much time did i have to work so i can have the money to pay for it? How much time a person in a third world country would have to spend? I ask the second questions to initiate perspective shift. Then i ask myself what else can i do with this money and how much time off could i have if i don’t spend this money. I think asking these questions largely depends on how deep in debt you are or how deep down the rabbit hole of “self perceived meaningful consumerism” you have dug down. Clearly our biases and imagined orders are drivers of our values so our estimation of opportunity cost is largely affected by those.
tvanantwerp 9y ago
Another, perhaps more depressing, way to think about opportunity costs: https://www.smbc-comics.com/comic/potential-2 https://www.smbc-comics.com/comic/potential-2
mkempe 9y ago
A better way to think about personal values is that we are rational animals and thus do (as we ought to) integrate our actions into long-range, sometimes life-long plans -- purpose, goals, objectives, i.e. values. This integration means that the value of what you do or have is what it enables you to do or have next. Think of steps on a ladder. For instance, one visits the grocery store in order to buy food ingredients so as to prepare a meal (furthering nutrition, health, sensual pleasure, friendship if you share that meal...). The higher each of your purposes, the more valuable all the intermediate steps, actions, and belongings that support your path to it.* Ultimately the price you must pay for all of your values is your own time, so make the most of it! * I think of this as teleological chains, and hold that there is a firm biological basis for this.
ukulele 9y ago
I agree with the sentiment but not the tense. It should read "Judge the value of what you'll have by what you'll have to give up to get it." This is actually in line with the example the author gives. If it's past tense, then you get yourself into sunk cost fallacies.
deleted 9y ago
[deleted]

121 points by imartin2k 9y ago

Great article about opportunity cost and trade-offs.

This title seems like a pretty bold endorsement of the sunk cost fallacy. Does the article actually reflect that? Why would something be more valuable just because I paid more for it?

_rpd 9y ago
> Does the article actually reflect that? No, the author is advocating taking opportunity cost into account, which is good advice.
- ewjordan 9y ago
  Unfortunately the title is misleading, and it makes sense that some would interpret it as supporting the sunk cost fallacy - the author is actually advocating for judging how much you should give up to get something by how much you'll value it, whereas the title has it flipped the other way.
UncleEntity 9y ago
> Why would something be more valuable just because I paid more for it? Because you derive more psychic profit from it?

aaronchall 9y ago

That's the cost approach to value, and directly speaking, it's a fallacy, as what you gave up is now a sunk cost. However, if nothing has really changed since you made the decision, it certainly establishes a minimum value to yourself as a revealed preference. Another is what would others give you for what you have (market value). I think the best one, that you can uniquely derive for yourself, is what is the maximum value at which you would have been indifferent to make the trade - that's the true value to yourself.

lifeisstillgood 9y ago
Just on your last paragraph- if I choose between apples and oranges, and am indifferent at 2 apples or one orange i see that an orange is worth two apples to me? is that your meaning?
- aaronchall 9y ago
  Yes. If you would gladly give up one apple for one orange, indifferent at two apples for one orange, and at three apples, you'd certainly decline to trade - then an orange, to you, is worth two apples.

OceanKing 9y ago

So by that logic, is my life worthless?

an_ko 9y ago
To live your life, you gave up the opportunity to live someone else's. So clearly your life is worth at least as much as anyone else's. Other people seem to act as though their lives have value, though unfortunately none of them can explain why either, except perhaps by themselves observing others treating their lives with value, and circularly repeating this argument. Want to bet on this human self-worth pyramid scheme? We guarantee you a 5000% return on your investment. Eventually. Maybe. Sign here! Congratulations, your life has value now, as long as you Believe™. Your other options are (a) suicide, or (b) becoming a nihilist, which is like suicide but with more thinking.
vinchuco 9y ago
At zero, yes. But you're also forced to give it up[]. Strange, really. []unless we reverse aging soon
analog31 9y ago
Are you a middle manager? ;-) The middle managers are perpetually faced with the prospect that if they choose A, they have to give up B, which is of equal value (within reasonable error bounds). This is a very real part of their lives. They remind us about opportunity cost, which turns out to be one more thing that they can't hope to calculate. At the end of the day, the average effect of their decision making is net zero.
- carlivar 9y ago
  This doesn't account for the time itself to make a decision. Many middle managers in organizations are not trained or empowered to make decisions quickly. This has serious opportunity cost of time. Nimble organizations make fast decisions which may have an eventual zero sum effect but at least gets there more efficiently, eh?
  - 9y ago

jadedhacker 9y ago

Cheap penicillin is very very valuable but precisely because it is cheap. Expensive penicillin would be more valuable per individual, but less valuable overall.

thaumasiotes 9y ago
No, expensive penicillin would be less valuable per individual, unless possession of penicillin turned into a status symbol. Whether it would be more or less valuable "overall" depends on how you define overall value.
- jadedhacker 9y ago
  The point I was trying to get across were the different conflicting conceptions of value and how one is shortsighted.

cimmanom 9y ago

And this is why so many people born into money have no idea how fortunate they are compared to everyone else in the world.

theoh 9y ago
If they didn't have to give anything up to get their wealth, then it can't be worth anything? Hardly. I don't think opportunity cost is really relevant in the case you mention.
- cimmanom 9y ago
  I don't think it's not worth anything. I think they fail to recognize the value of it because for them there was no opportunity cost. (Whereas for the parents or grandparents who earned the money, there was typically a cost in terms of, for instance, time spent with family.)
  - theoh 9y ago
    That's just one, very plausible, possible back story. (https://en.wiktionary.org/wiki/clogs_to_clogs_in_three_generations https://en.wiktionary.org/wiki/clogs_to_clogs_in_three_gener...) But some wealth is effectively a windfall. Tim Harford's point is that we aren't inclined to think about opportunity cost. It doesn't, in fact, come naturally. A life of privilege has opportunity costs too: it can be really hard for someone "well born" to acquire certain competences. And an (elective?) nerd's opportunity cost is all those things that jocks enjoy. (A ridiculous example, sorry!)

the_cat_kittles 9y ago

for some reason the first thing i think of is how in art this is probably the worst advice ever.

insickness 9y ago

Maybe better to say: People judge the value of what they have by what they had to give up to get it.

lifeisstillgood 9y ago

So my wife is worth ... every other woman on the planet. yeah that's about right ;-)

nabla9 9y ago

Some concepts in economics are so fundamental that they should be part of philosophy curriculum. Opportunity cost is one of those concepts. Scarcity forces resource allocations and choices to us. If nothing else, we can't be in two places at the same time (time is scare) so we have to make choices. How to value the cost of choice is fundamental to everything we do.

vincentmarle 9y ago
It would be good to realize that it’s only useful to think about opportunity costs for future problems (opportunity is in the name). Once costs have been made in the past, they should have little weight in future decision making, hence the concept of sunk cost. Decision making is also often not as cut and dry as the article suggests: once you throw probability, randomness and asymmetrical outcomes in the mix, it’s really hard to determine your true opportunity costs.
- lostctown 9y ago
  I've had my mind on this exact point for a while. But I'm slowly realizing that I tend towards new shiny things, like many people. And sometimes that project I've been grinding on for a couple years starts to look less appealing. So I lean on the argument that, 'hey, I put a lot of time into this. I should continue.' Continuing to work on the long boring project for this reason alone technically qualifies as the sunken cost fallacy. Yet it helps me override my internal *human bug I'm experiencing. That is, we associate boredom with a lack of progress.
- jacobr1 9y ago
  This is when the concept of a "discount function" comes into play
deleted 9y ago
[deleted]

JoeAltmaier 9y ago

Its very easy to add up everything you don't have, and see that it's larger than what you do have. The true 'opportunity cost' is adding up what might have been, weighted by the probability of it actually occurring. Very hard to calculate. Makes the advice in the article interesting but largely moot. Compound it by people being generally terrible at recognizing true probabilities. "I could have been a famous musician! I gave up on my dreams!" This failure is responsible for 99% of the folly in life - playing the lottery, not wearing seatbelts, not committing...

tvanantwerp 9y ago
I don't think that's really the point being made here. Opportunity cost is a useful thought exercise for all kinds of decisions, not just "Should I follow my passion to become an underwater basket weaver?" type questions. I've found it very helpful to consider what opportunities I'm giving up whenever I'm deciding on a course of action, even if it's simple like: "If I go out drinking with friends tonight, I'm giving up rising early tomorrow and feeling good."

justherefortart 9y ago

Lol this is nonsense. Judge the value of what you have by what someone else is willing to pay for it.

timeisbounded 9y ago

Whenever i purchase something i think about how much time did i have to work so i can have the money to pay for it? How much time a person in a third world country would have to spend? I ask the second questions to initiate perspective shift. Then i ask myself what else can i do with this money and how much time off could i have if i don’t spend this money. I think asking these questions largely depends on how deep in debt you are or how deep down the rabbit hole of “self perceived meaningful consumerism” you have dug down. Clearly our biases and imagined orders are drivers of our values so our estimation of opportunity cost is largely affected by those.

tvanantwerp 9y ago

Another, perhaps more depressing, way to think about opportunity costs: https://www.smbc-comics.com/comic/potential-2 https://www.smbc-comics.com/comic/potential-2

mkempe 9y ago

A better way to think about personal values is that we are rational animals and thus do (as we ought to) integrate our actions into long-range, sometimes life-long plans -- purpose, goals, objectives, i.e. values. This integration means that the value of what you do or have is what it enables you to do or have next. Think of steps on a ladder. For instance, one visits the grocery store in order to buy food ingredients so as to prepare a meal (furthering nutrition, health, sensual pleasure, friendship if you share that meal...). The higher each of your purposes, the more valuable all the intermediate steps, actions, and belongings that support your path to it.* Ultimately the price you must pay for all of your values is your own time, so make the most of it! * I think of this as teleological chains, and hold that there is a firm biological basis for this.

ukulele 9y ago

I agree with the sentiment but not the tense. It should read "Judge the value of what you'll have by what you'll have to give up to get it." This is actually in line with the example the author gives. If it's past tense, then you get yourself into sunk cost fallacies.

deleted 9y ago

[deleted]