When you make a choice, it is the most valuable option you give up among all the alternatives. Economist Meng Kun says that the opportunity cost of something is what you give up to obtain it. In short, opportunity cost is the greatest cost of what you give up.
The concept of opportunity cost is easy to understand, but not everyone knows how to calculate it. There are generally three common mistakes:
First, overestimating the cost. Some people count the losses from all the options they gave up as the opportunity cost of their choice. For example, I’m especially tired this weekend and want to slack off and just lie around, so I give up on a special-forces-style trip to Beijing Badali, Shanghai Disneyland, Qingming Riverside Park, and Datang Everbright City. I feel like I’m missing out on a lot and really regret it. But opportunity cost isn’t the combined value of every option you give up; it’s the place I wanted to visit second. You may think an absurd example like mine is absurd, of course. But at work, in business, and in relationships, people often keep score this way to emphasize their own losses and make the other person feel more guilty.
Second, underestimating costs. Some people only consider the obvious costs and overlook the hidden ones. An inconsiderate colleague who keeps taking time off and switching off whenever the team has an urgent project, shirking work and going out to have fun, might think they’re only losing a few days’ pay at most, or getting a fine. In reality, they may also lose their colleagues’ trust, their manager’s confidence, and opportunities for promotion. Many choices involve not only visible losses, but also far-reaching consequences you’ll only notice if you think one step further. A rose on Valentine’s Day, a tissue offered when you’re crying, or an apology after a misunderstanding—each is worth more than its face value.
Third, misunderstanding opportunities. The lottery shop closes, and you miss out on winning 5 million. Only options that present an opportunity count as opportunity costs. A common mistake these people make is to calculate costs by looking only at the size of the loss, not at its probability. The lottery shop owner had something to take care of today and closed the shop, so you couldn’t buy a ticket. The opportunity cost of that loss is not the lottery’s top prize.
Life is made up of countless choices, and every choice comes at a cost. To gain one thing, you have to give up others at the same time. What we call regret is focusing too much on the cost of what you gave up. There’s no need to lament regret—everyone has regrets in life. It’s enough that the choice you make now is what you want or need, and is more worthwhile than what you regret.