“I live this life at a pace that anyone can go. Know your place, and dedicate your role…To the faith that you’ll die alone.” — Kendrick Lamar, Musician and Pulitzer Prize Winner
The science of economics is the science of choice. In modern life, this choice involves how to spend the most precious resource of all — our time. This article explains the twentieth century concept of opportunity cost and how it can be applied to life choices most importantly to choose what to learn and what not to invest your time in. After all, the clock is ticking and we have not time to lose. We need to make the most of our time. However, the concept of opportunity cost is deceptively simple but it can seem counter intuitive at the time of making a choice. This is why thinking about life choices in terms of ‘opportunity cost’ is like common sense — uncommon to say the least.
The discipline of economics can be of tremendous utility when it comes to problems of abundance. The attention economy is a suppliers’ economy. Everyone from content creators such as Netflix to video game designers are vying for your time. We live in a world that is constantly on and scarcity is a thing of the past. How, then, should we make our choices? This is where the concept of opportunity cost comes in. While it is not a one size fits all solution, it is a great framework to help you think through life choices.
The Concept Of Opportunity Cost
In microeconomic theory, the opportunity cost, also known as alternative cost, of making a particular choice is the value of the most valuable choice out of those that were not taken. In simple terms, when you chose to do something, you give up something.
As per Wikipedia, the term was first used in 1914 by Austrian economist Friedrich von Wieser in his book Theorie der gesellschaftlichen Wirtschaft (Theory of Social Economy). The idea had been anticipated by previous writers including Benjamin Franklin and Frédéric Bastiat. Franklin coined the phrase “Time is Money”, and spelt out the associated opportunity cost reasoning in his “Advice to a Young Tradesman” (1748):
“Remember that Time is Money. He that can earn Ten Shillings a Day by his Labour, and goes abroad, or sits idle one half of that Day, tho’ he spends but Sixpence during his Diversion or Idleness, ought not to reckon That the only Expence; he has really spent or rather thrown away Five Shillings besides.”
In that sense, everything in this world has a price. For example, you may think writing on Medium is a free endeavor. All you need is a laptop and free Wi-Fi. However, everything in the world has an opportunity cost. If you spend time writing, you may be giving up spending time with your family. So, spending time with your family is the value of the the next best option at the time.
To take another example on similar lines, many people want to be a legendary value investor like Warren Buffet. As per CNBC:
“The CEO of Berkshire Hathaway, when asked once about the key to success, pointed to a stack of books and said, “Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
As Buffet says, not many read balance sheets, 10-K’s and press releases from companies and yet aspire to find value in a market filled with countless stocks. There are no shortcuts to a billon dollars.
One of the most extreme examples of opportunity cost is Patrick Collison, the CEO of Stripe. Patrick has a clock that counts down to the time left before he dies. He uses his mortality to remind him to make wise choices such as read books over watching television. The list of people who attribute their success to the simple habit of reading is countless — Elon Musk and Bill Gates to name a few.
Therefore, the next time you do anything, think of what you are giving up. The concept of opportunity cost is a very powerful framework to making decisions. To know your role in this world, it is important to know what you don’t want to do. Some of the most interesting people in this world don’t know what to do with their lives. A simple exercise called the Process Of Elimination (POE) is the best approach. If you remove the things you don’t want to spend your time on, you can allocate your time to the things you like and more importantly, to the things you love.
It could also be the case that you clearly know what you are passionate about but don’t have the means to pursue your dream. In such cases, you can use the concept of opportunity cost to rank order the things you love to do. Then, choose the one that you think the world values. If you pursue a skill the world values, you can achieve reasonable commercial success — a solid foundation to pursue your dream that was not economically feasible before. Many people pursued engineering only to return to their original love of acting in movies.
The Curse Of Exponential Technologies
Everyday, I get a question from my colleagues, senior executives and friends: how do I learn to code? I smile and ask them in return: why do you want to code? This simple yet profound question reframes their thought process and forces them to recreate their decision tree. Later, when I hear the reasons why they want to code, it turns out they really don’t want to learn to code. After all, everyone is different. Therefore, the answer to everyone is different. Life is different for a student in high school who loves programming than for a student who loves painting. It is also different for a mid-level executive than for a C-suite executive.
One thing common to everyone is the fact that everyone, irrespective of background, needs to learn about technology. It is not enough to learn about the practical application of science. In fact, it is more important to know what is ‘theoretically’ possible with the technologies at play today. The reason for this shift in thinking is very simple. It is called democratization of technology. Extremely powerful technologies such as CRISPR — CAS 9, Blockchains and Artificial Intelligence are accessible to everyone. He Jiankui, A Chinese scientist, claimed to have created genetically modified babies because gene editing has become so inexpensive today.
The problem with exponential technologies is that they grab the headlines, focus people’s attention on their power and create a curse for the human population not interested in learning more about them. Believe it or not, there are people in this world who would rather spend their time writing, painting, sculpting or creating music than learning to code Machine Learning (ML) algorithms or learning to code in Solidity so they can create smart contracts on the Ethereum blockchain.
There are many ways to get involved with exponential technologies than becoming a developer or a scientist.
The most obvious one is to read about them and watch YouTube videos. Secondly, there are many Massive Open Online Courses (MOOC’s) that will give you enough to get started. Thirdly, participating in a neighborhood Meetup and involvement with think tanks such as Singularity University are other great ways to learn from others.
If your curiosity spurs you further, you can actually become a developer by dedicating one hour everyday to learn popular languages such as Get Python. The problem with coding, as with most things, is the 10,000 hour rule. You cannot be good at coding without practically applying in your everyday life. Also, there are many people in this world who love coding and can outpace you. The question then becomes: how much knowledge is enough? Apply the principle of opportunity cost to help you.
Become A Dot Connector
A dear friend explained the concept of ‘vision’ to me. Vision is the ability to see things others cannot. It is the ability to connect seemingly random dots and to find order and logic in a complex world composed of variables with three or more degrees of separation between them. Quanta recently published a great article on the topic titled ‘A Physicist Who Models ISIS and the Alt-Right’.
All things said and done, it is impossible to survive in the modern world without knowing about technologies that are reshaping our lives. The power of knowledge of these technologies lies in the fact that you can connect the dots and see things others cannot. For example, you can understand what will lie at the future intersection of AI and genetic editing. There are so many technologies in play today that it is critical to understand their interplay to understand what the future will look like.
You may not have a crystal ball but if you can predict the future of this world with increasing accuracy, you will become indispensable to any business, government or educational organization as they navigate their respective future strategies. In simple words, you don’t need to learn to code ML algorithms. You just need to know enough to understand their impact and how they will affect our lives in the future. You don’t have to learn to join open API’s but their knowledge will help you understand whether to build or buy software.
To be a great dot connector, you have to become a voracious reader. Read everything from the MIT Tech Review, Quanta magazine, WIRED and other tech journals and blogs to get as much perspective as you can. In fact, you don’t need to choose blogs and publications today. It is almost impossible to find a newspaper, magazine or blog that doesn’t discuss technology in some way, shape or form.
Understanding the opportunity cost of everything will help you make good choices. It could be much easier to decide what not to do than to decide what to do.