Opportunity cost is one of the most crucial topics we often overlook. What is opportunity cost? Every time we buy something, even a cup of coffee, that money can't be used for something else. The reality is that people struggle with considering opportunity cost. We rarely account for it in our financial decisions, and we’re even worse when it comes to time.
A few years ago, I visited a Toyota dealership and asked potential buyers what they couldn't do if they bought the car. Despite knowing the car's cost, they had no answers. When pressed, most said they couldn't buy a Honda instead—technically correct but not insightful. I’d hoped they would mention sacrificing vacations, books, or dining out for the next few years.
It turns out we don't think about opportunity costs thoroughly, leading to financial mistakes. What about the opportunity cost of time? That's also true. We look at tomorrow's busy schedule and decline meetings due to constraints. But if asked to meet in a year, we assume we'll have plenty of time. The truth is, we'll be just as busy next year but fail to consider future commitments.
So, what does this mean? To make better decisions, we must consider the opportunity cost of both time and money. Who is the worst at opportunity costs? Bureaucrats. For them, it’s all about process over optimization.
For example, in my lab last October, many wanted to take an AI course at Duke to improve their skills—a worthwhile investment in human capital. With discretionary funds available, I approved it immediately. The course cost about $5,000 per person and was scheduled during a slower period in November and December. However, bureaucracy delayed approval by five months. By then, the ideal timeline had passed, pushing us into a hectic period. While the course was ultimately beneficial, the delay caused significant dead weight loss—valuable time wasted.
The takeaway? We need to consider the opportunity costs of both money and time seriously. Bureaucracy should integrate this thinking to avoid procedural delays that waste resources. Without considering opportunity costs, we can't make sound decisions—not with time, money, or combined investments like courses.
So let's aim for more thoughtfulness and less bureaucracy.
