"Opportunity knocks just once"... and if you miss it, you incur an opportunity cost. Economics says, even if you do not, you will incur an opportunity cost.
Opportunity cost is the cost of making one choice out of the multitude available to you. The productive time that you miss while you sleep is also an opportunity cost! But indeed, this point is debatable. One could argue upon the essentiality of sleep. But since the 'gain' from both activities is different, we can categorically call it an opportunity cost.
To further complicate things, opportunity costs are incurred explicitly and implicitly. It is not unusual to incur explicit and implicit costs simultaneously. In my case, forgoing the salary I used to earn is an implicit opportunity cost (no cash flows). Whereas, choosing to pursue an MBA after quitting my job is an explicit opportunity cost (fees constitute the cash flow).
Let's say, you bought a ticket at $100 to watch the Roddick-Federer battle and I offerred to buy it from you at $150. But the diehard fan that you are, you decline my offer. So, net-net, how much has the ticket cost you - $100 or $150? In terms of cash flow, you have transacted a cash outflow of $100; but you also missed an opportunity of transacting a cash inflow of $150.
An accountant would say, it cost you $100. An economist would say, it cost you $150; $100 that you paid and $50 that you apparently lost.
Another dilemma that meets the eye (more than you would want it to) is comparing the tangible gain/loss to the intangible gain/loss. Taking an unpaid leave to enjoy a vacation at your dream location, with your better half .... Not all of us may be able to see sanity in this choice (depending upon how rational you are). Now... rational people think at a margin. And marginal gain/loss depends upon how much you 'value' the outcome of a decision; and the value per se might well be different for each one of us.
So, take-away from here is... let the opportunity costs RIP, because you may hardly ever end up getting positive returns - after all, the cost is all about missing something.. ain't it?
