Scrap My Computer Or Fix It? The Importance Of Opportunity Costs

Posted: Mar 05, 2019 9:43 AM
Scrap My Computer Or Fix It? The Importance Of Opportunity Costs

I have had some problems with my computer lately. I’m the kind of guy who likes to know how things work, so I have been pretty hands-on with my personal computers over the last few decades. I have spent considerable time and some money trouble-shooting this thing, but it could be a number of issues. It seems like computers last only 5 or so years these days, so at what point do I let a professional look at this six year old machine? At what point does it make sense to get a new one?

Nobody can really answer for me. There are a lot of unknowns, and there is real cost to making them known. How much will it cost to have a professional look at it, with the possibility that the diagnosis will be a new computer. How much will a new computer cost that fits the bill? What do I really need in a computer? If I don’t use a professional and don’t get a new one, how many more hours will I waste troubleshooting and installing software and hardware? I am going to have to make a decision. With each possibility, there are potential benefits, but also real costs that are involved, including my time, which I value.

Every choice we make is like that. The real cost of one option is the benefit that you would have gotten had you chosen another, the cost of the lost opportunity. We usually think of cost in terms of money, but in virtually every decision we make, non-monetary factors figure in, sometimes to a much greater extent than the money. They are an important part of the costs we should consider. Lost opportunity is real and has value beyond money.

The same goes for decisions made by organization management and government officials. There are opportunity costs for everything, and there are many unknowns. The difference between decisions of private individuals or organizations and those of government officials is that the former typically have some form of ownership attached it, even it if is only as management hired by owners. That means that there is the potential for loss on a personal level for bad decisions and gains for good ones.

Politicians, on the other hand, make their decisions without any type of ownership or management accountability. They take credit whenever good things happen, but never take the blame when bad things happen. It is true that incompetent politicians can be voted out and that incompetent bureaucrats can be fired. In reality, however, that almost never happens. No matter how bad a politician is, morally, ethically, or legally, almost all of them keep getting reelected. No matter how ineffective, disruptive, or wasteful a bureaucrat is, he or she keeps the job and is protected from firing.

Even if all public employees and officials, however, had the best of intentions and worked diligently for the benefit of “the public,” the public is made up of millions of different people with different goals, motivations, and assumptions about the present and the future. They make different choices given the same circumstances. If a government official makes the right choice for one individual, he or she makes the wrong one for millions of others. As with my computer problem, there are lots of unknowns that even “experts” can’t and don’t take into consideration.

The best decisions are made by those who have something to lose, who have skin in the game. Most should be left to private individuals and owners, or at as local a level as possible. Decisions made at the national level by unaccountable officials are the wrong ones for most of the people most of the time.