Notes on "The Economic Naturalist" by Robert H. Frank

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page 4: The opportunity cost of an activity is the value of what you have to give up to pursue it.

Frank gives an example, the opportunity cost of seeing Eric Clapton in concert:

1. You have a free ticket to see Eric Clapton.

2. Bob Dylan is performing tonight.

3. Dylan costs $40, but you'd be willing to pay up to $50 to see him.

For the sake of simplicity, there are no other costs, and nothing else you're considering doing, you can't resell the Clapton ticket, etc.

The opportunity cost is calculated as follows:

  $50.00 (you miss seeing Dylan, worth $50 to you)
- $40.00 (you save $40 that you would have paid to see Dylan)
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  $10.00 is the opportunity cost of going to the Clapton concert

Frank concludes that if the Clapton concert is worth $10 to you, you should go.

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Opportunity Cost & Web Design

One way to think of Opportunity Cost is as "losing interest". When the Opportunity Cost of an activity becomes too high, you loses interest; you start to feel that you are wasting time.

This idea is useful in understanding web site design. A site that is beautifully designed but which is too slow or complicated to use has a high opportunity cost -- the user starts to feel that he or she could be doing better elsewhere.

It is therefore extremely important in designing a web site that the user experience feel concentrated and useful, keeping the opportunity cost as low as possible.

If the reason for the user's visit is to get something done, anything that slows him or her down raises the opportunity cost. This is true regardless of how beautiful or interesting the site is by other criteria.

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Addiction

It is interesting to consider the concept of opportunity cost in addiction. What we are looking for is a way to describe the moment that the addict (who would like to stop using) caves in and decides to once again take his drug.

The junky shoots up when the opportunity cost of taking the drug becomes low enough.

Here is a scenario:

Week 1: J (the junky) gets out of rehab. He is full of optimism, and has a new lease on life. He goes home and cleans his apartment, and starts his new job (thanks to a government program for helping addicts get a new start).

At this time, the opportunity cost of using is far too high, and J does not seriously consider shooting up.

Week 2: things are going a little less smoothly. His job is tiring, and J has not consistantly done the dishes or put things away.

J's apartment is getting a little messy. It turns out that J's new boss has a tendency to micromanage. J's girlfriend has a lot of ideas about how he should do things differently, and although J tries to go along, it's a lot of work and he doesn't always agree.

J starts to think about shooting up, how nice it would be. He really wants things to work out, to stay on the wagon, but boy is it frustrating. His quality of life is significantly lower than it was during week 1, and the opportunity cost of using (losing most of what he has) has dropped significantly.

Week 3: J really wants things to work out. He's doing his best to make his boss happy and implement all of his girfriend's ideas. That doesn't really leave him with a lot of energy for himself, and his apartment is slowly turning into a catastrophe. No matterwhat he does, he doesn't feel like his boss will really like him.

J feels guilty that he's not doing better at keeping those people around him happy.

At this point J has invested a significant amount of energy in the people around him. Everyone knows that junkies are selfish, and J is trying really hard to be selfless. It just doesn't seem to be working out. He doesn't have enough energy, and he can't seem to satisfy everyone. He's stopped taking care of himself in order to be good to other people.

You can see where we are going with this. The more that J tries to "be good" and "help others" the faster his life spirals downward. The lower his quality of life, the lower the cost of opportunity of using.

There comes a moment when J thinks: ah fuck, it's not worth it. I tried everything, and I can't win. My life is shit anyway, so I might as well shoot up and feel good for a few minutes.

It is obvious from this example that although he was trying to be good, everything J did lead to a decreased opportunity cost for using. When the opportunity cost was low enough, J shot up.

Imagine another scenario where J gets out of rehab, and instead of trying to "be good", he just tries to have a good life. He takes a vacation in the caribbean, starts working out, learns to draw, learns to cook, decides not to take the advice of his girlfriend just because he doesn't feel like it. Etc. etc.

The quality of J's life goes up consistently. The opportunity cost of using drugs also goes up, and as time goes by J is less and less tempted (although he never was really tempted once he got out of rehab).

The important thing here is that even by trying to do right for everyone else, the junky can dig his own grave by lowering the opportunity cost of his drug by not taking care of himself.

Only by increasing his OWN quality of life can the junky increase the opportunity cost of using.

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