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This is the concept of opportunity cost[1], and along with time preference and marginal utility, it is one of the foundations of praxeological thought. Understa

This is the concept of opportunity cost[1], and along with time preference and marginal utility, it is one of the foundations of praxeological thought. Understanding OC changes your entire perspective on the world, makes you realize why rich people don’t recycle as much, why first class flights exist, and why people with higher salaries are more likely to have chauffeurs (so they can not waste time on the act of driving, when the economic output they would produce in that time pays for the driver, the car, the fuel, and still leaves profit). [1]: http://en.wikipedia.org/wiki/Opportunity_cost http://en.wikipedia.org/wiki/Opportunity_cost

tikhonj 14y ago
Opportunity cost is an important idea to keep in mind. However, there are some other factors which are also important. For one, money now is worth more than money later. It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. Another is that time worked is not necessarily linearly proportional to productivity. Perhaps for the most menial of assembly line work this is true, but for creative endeavors like programming it isn't. In fact, working more can make you less productive in an absolute sense! You also have to keep your risk tolerance in mind. That is, a 1% chance of earning $1000 is not the same as a 10% chance of earning $100. And, of course, opportunity cost also applies to all sorts of resources like money (especially in some liquid form) as well as time. This is something to keep in mind if you plan on investing money in something illiquid. In short: opportunity cost is important, but so are a bunch of other things.
- saraid216 14y ago
  This can actually be captured with the simple recognition that opportunity cost is not entirely monetary, but rather it's about value. "Money now" has more value than "money later". This is described using a http://en.wikipedia.org/wiki/Value_function http://en.wikipedia.org/wiki/Value_function > It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. It's called http://en.wikipedia.org/wiki/Temporal_discounting http://en.wikipedia.org/wiki/Temporal_discounting
  - olalonde 14y ago
    > It's called http://en.wikipedia.org/wiki/Temporal_discounting http://en.wikipedia.org/wiki/Temporal_discounting For larger amounts of money, it is also important to consider the time value of money: http://en.wikipedia.org/wiki/Time_value_of_money http://en.wikipedia.org/wiki/Time_value_of_money
- zacharyvoase 14y ago
  The first point you raised is 'time preference', which is simply the discounting we apply to future or uncertain income over immediate value. The second one is 'marginal utility', which is perhaps best described as the difference in value of a litre of water to a dehydrated man in a desert vs. a man who owns a desalination plant.
ricardobeat 14y ago
> when the economic output they would produce in that time pays for the driver, the car, the fuel, and still leaves profit Is that really true? From a certain point the economic output is produced regardless of what that guy is doing, he is just setting future directions. Does Tim Cook generate $2.9 million every time he takes a dump? I don't think so. I have a better explanation: convenience and satisfaction.
- icebraining 14y ago
  There's still productive things you can do while being driven somewhere - phone calls, reading documents, etc.

tikhonj 14y ago

Opportunity cost is an important idea to keep in mind. However, there are some other factors which are also important. For one, money now is worth more than money later. It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. Another is that time worked is not necessarily linearly proportional to productivity. Perhaps for the most menial of assembly line work this is true, but for creative endeavors like programming it isn't. In fact, working more can make you less productive in an absolute sense! You also have to keep your risk tolerance in mind. That is, a 1% chance of earning $1000 is not the same as a 10% chance of earning $100. And, of course, opportunity cost also applies to all sorts of resources like money (especially in some liquid form) as well as time. This is something to keep in mind if you plan on investing money in something illiquid. In short: opportunity cost is important, but so are a bunch of other things.

saraid216 14y ago
This can actually be captured with the simple recognition that opportunity cost is not entirely monetary, but rather it's about value. "Money now" has more value than "money later". This is described using a http://en.wikipedia.org/wiki/Value_function http://en.wikipedia.org/wiki/Value_function > It's easiest to imagine future earnings discounted based on how far in the future they are; I think traditionally they are discounted exponentially. It's called http://en.wikipedia.org/wiki/Temporal_discounting http://en.wikipedia.org/wiki/Temporal_discounting
- olalonde 14y ago
  > It's called http://en.wikipedia.org/wiki/Temporal_discounting http://en.wikipedia.org/wiki/Temporal_discounting For larger amounts of money, it is also important to consider the time value of money: http://en.wikipedia.org/wiki/Time_value_of_money http://en.wikipedia.org/wiki/Time_value_of_money
zacharyvoase 14y ago
The first point you raised is 'time preference', which is simply the discounting we apply to future or uncertain income over immediate value. The second one is 'marginal utility', which is perhaps best described as the difference in value of a litre of water to a dehydrated man in a desert vs. a man who owns a desalination plant.

ricardobeat 14y ago

> when the economic output they would produce in that time pays for the driver, the car, the fuel, and still leaves profit Is that really true? From a certain point the economic output is produced regardless of what that guy is doing, he is just setting future directions. Does Tim Cook generate $2.9 million every time he takes a dump? I don't think so. I have a better explanation: convenience and satisfaction.

icebraining 14y ago
There's still productive things you can do while being driven somewhere - phone calls, reading documents, etc.