Wednesday 5 June 2019

Opportunity Cost


One of the most important and powerful factors and often ignored one while making decisions is opportunity cost. 

If it's so important, why does it get ignored all the time ? Because it's abstract. And since it's abstract it goes out of sight. And out of sight quickly becomes out of mind. 

Munger has spoken highly about Greg Mankiw who has highlighted the importance of opportunity cost in making decisions.

“If you take the best text in economics by Mankiw, he says intelligent people make decisions based on opportunity costs—in other words, it’s your alternatives that matter. That’s how we make all of our decisions.” -Charlie Munger

We have read about opportunity cost of capital and opportunity cost of time. I recently came across a speech (~13:00) by Mr Dilip Shanghvi (Sun Pharma) where he explains the importance of thinking about opportunity cost of attention while thinking about acquisitions. He termed it dis-synergies in acquisitions. I found it a very interesting way to think.
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