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The opportunity cost of an action is the value of the best alternative action that could be or could have been taken instead.

For instance, suppose that you are considering whether to donate $40,000 to provide a blind American with a guide dog. Suppose that if you don’t, then you have the opportunity to use the $40,000 to pay for surgeries to reverse the effects of trachoma in 2,000 patients in the developing world. In this case, the opportunity cost of choosing the blind dog option is the value of 2,000 patients having their eyesight saved

The standard view both among economists and within the effective altruist community is that opportunity costs should be treated symmetrically with other costs. To illustrate, compare the following two situations:

  1. You have received a free ticket to a concert which you do not particularly want to go to, which you may sell for $50.
  2. You can purchase a ticket to a concert which you do not particularly want to go to for $50.

Assuming that these transactions would not cause any extra inconvenience, not selling the ticket in (a) is just as costly and irrational as buying the ticket in (b). Yet intuitively, humans do not think of these examples in this way - potentially because we tend to be “loss averse,” meaning we care more about potential losses than potential gains. For this reason, it is important to reflect carefully on potential opportunity costs of inaction, and in particular to consider the counterfactuals.

Further reading

Wikipedia. 2016. Loss aversion

Wikipedia. 2016. Opportunity cost.