Tuesday, September 15, 2009
Reading about and discussing opportunity cost has always been particularly interesting to me. Opportunity cost evaluation is useful in many ways, from an effective excuse for procrastination (not until the last minute was doing my homework worth foregoing all other activities) to a valuable tool in decision making and time management. While the monetary and accounting aspects of opportunity cost are the most often cited examples (e.g. the cost of foregoing taking on a part-time job or contract work to plant a garden or go on a hike) I find that non-monetary valuations have more room to exhibit the plurality of human utility and preference differentiation. Non-use and non-monetary valuations can be more abstract and subjective than monetary ones, but I think they incorporate aspects of human decision-making that monetary valuation of opportunity cost lacks. Take for instance the labor-leisure tradeoff, while from a monetary outlook taking on a second job may be the opportunity cost minimizing decision when allocating time not spent on one's primary employment, it is possible to make the decision to choose to walk your dog or learn to cook and still make a utility maximizing choice. The Income Effect states that as income rises a person will desire more of a normal good, if we consider leisure a normal good, then as income rises a person predisposed toward leisure will choose not to take on a secon job and perhaps will glean more utility from a vacation or archery lessons. I find it fascinating to consider human behavior and opportunity cost valuation from the viewpoint of utility and I believe it represents and possibly explains human decision making in a light that dollars and cents alone does not capture.