The High Cost of Bathing

Toddlers seem to intuit opportunity cost. My son Logan and I were playing with his new GeoTrax last night when I told him it was time to take a bath. Do you think he liked the idea? Heck no! He seemed to understand that the best use of his time was playing with his train. Since opportunity cost is the cost of something in terms of an opportunity foregone, for my son the opportunity cost of the bath was the playtime he wouldn’t enjoy. The opportunity cost of playing with his GeoTrax was one missed bath. His choice suggests he was selecting the most rational option, but perhaps we’re missing something.As adults, many of us don’t understand opportunity costs. We make irrational choices, some of them quite costly. For example, we buy a new car when the one we have is functional and its maintenance is far less expensive than a new car payment. On the other hand, the opportunity cost of the new car is the best alternative use of the money. Assume for this mental exercise that the best alternative is investing the money. The opportunity cost of the car is the value of the investment that was not made. The opportunity cost of the investment is the pleasure of having the new car. The rational choice is the investment, but millions choose the car. Something else is behind these choices.That something else is hedonism. It underlies both the toddler’s desire to play instead of take a bath and the choice many of us make when we buy a new car. The three steps for using opportunity cost in decision making are:

1. List the options
2. Determine what the best alternative option would be for each (these are the opportunity costs)
3. Compare the costs

When choosing between two options a quick comparison of the options and costs will make plain the most rational choice. When there are more than two options the most frequently listed cost is the best choice. Determining and comparing the opportunity costs when making choices helps us prevent the self-serving bias in our nature from prevailing over rationality. This in turn helps us improve our situation whether physical, mental, spiritual, or financial. The motives we had as children won’t serve us as adults. If they did I would still be wearing my clothes over my pajamas.