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Opportunity cost theory always consistent?

Informationare
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5/12/2015 5:09:03 PM
Posted: 1 year ago
Hi,

I have an opportunity cost problem for those of you who are interested. I will try to be as brief as possible. Before we go any further let me define a few of Harry Browne's terms so that we are on the same page:

Happiness - the mental feeling of well-being.
Profit- an increase in happiness when one value is given up in exchange for a greater value.

Background information: John is a software designer and lives in a city.

The problem:

Scenario A:
Suppose John gets a call one day. "Hello Mr. John, would be interested in buying a sack of dirt for $100?". John replies "Please get off my phone in a hurry and never call me again". John is annoyed.

Scenario B:
Suppose John has a sack of dirt in the basement that serves no purpose at all. He places little value on the sack of dirt. In fact, he would give it away for free if someone asked for it.

Some time during the day he gets a call. "Hello Mr. John, would you be interested in selling your sack of dirt for $100?". John goes "whoohoo!". A hundred bucks for practically nothing. John is happy.

Now in scenario A, John has to choose between $100 and a sack of dirt. He has to make the same choice in scenario B. He chooses the $100 in both cases. His opportunity cost in scenario A and B is the sack of dirt because he values his $100 more than the dirt.

In scenario A, even though John gives up something of very little value in exchange for something of much greater value, he did not experience an increase in happiness and was consequently left annoyed.

In scenario B however, the opposite is true. He gives up something of very little value in exchange for something of much greater value. But this time there is an increase in happiness, therefore he profits.

Now, notice how he was presented with the same exact alternatives in both scenarios and how he made the same exact choice. But why such different outcomes?

I must be clearly missing something, because this doesn't make any sense to me.

Your help is much appreciated!
Diqiucun_Cunmin
Posts: 2,710
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5/12/2015 6:13:54 PM
Posted: 1 year ago
At 5/12/2015 5:09:03 PM, Informationare wrote:
Hi,

I have an opportunity cost problem for those of you who are interested. I will try to be as brief as possible. Before we go any further let me define a few of Harry Browne's terms so that we are on the same page:

Happiness - the mental feeling of well-being.
Profit- an increase in happiness when one value is given up in exchange for a greater value.

Background information: John is a software designer and lives in a city.

The problem:

Scenario A:
Suppose John gets a call one day. "Hello Mr. John, would be interested in buying a sack of dirt for $100?". John replies "Please get off my phone in a hurry and never call me again". John is annoyed.

Opportunity cost of buying sack of dirt (option X)
= Pecuniary cost + Non-pecuniary cost
= $100 + Whatever stupid time cost and transaction cost involved in this transaction

Opportunity cost of not buying sack of dirt (option Y)
= Sack of dirt forgone (i.e. not much, maybe $0.01?)

--> Result: Choose option Y
Scenario B:
Suppose John has a sack of dirt in the basement that serves no purpose at all. He places little value on the sack of dirt. In fact, he would give it away for free if someone asked for it.

Some time during the day he gets a call. "Hello Mr. John, would you be interested in selling your sack of dirt for $100?". John goes "whoohoo!". A hundred bucks for practically nothing. John is happy.

Now in scenario A, John has to choose between $100 and a sack of dirt. He has to make the same choice in scenario B. He chooses the $100 in both cases. His opportunity cost in scenario A and B is the sack of dirt because he values his $100 more than the dirt.
Opportunity cost of selling the dirt (X)
= Sack of dirt forgone (i.e. not much, maybe $0.01?) + Whatever time cost and transaction cost involved in this transaction

Opportunity cost of not selling the dirt (Y)
= $100

-->Result: Choose option A

In scenario A, even though John gives up something of very little value in exchange for something of much greater value, he did not experience an increase in happiness and was consequently left annoyed.

In scenario B however, the opposite is true. He gives up something of very little value in exchange for something of much greater value. But this time there is an increase in happiness, therefore he profits.

Now, notice how he was presented with the same exact alternatives in both scenarios and how he made the same exact choice. But why such different outcomes?
They weren't really the same alternatives :)
I must be clearly missing something, because this doesn't make any sense to me.

Your help is much appreciated!
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...
Diqiucun_Cunmin
Posts: 2,710
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5/12/2015 6:14:37 PM
Posted: 1 year ago
At 5/12/2015 6:13:54 PM, Diqiucun_Cunmin wrote
Opportunity cost of selling the dirt (X)
= Sack of dirt forgone (i.e. not much, maybe $0.01?) + Whatever time cost and transaction cost involved in this transaction

Opportunity cost of not selling the dirt (Y)
= $100

-->Result: Choose option X

Fixed, stupid me
The thing is, I hate relativism. I hate relativism more than I hate everything else, excepting, maybe, fibreglass powerboats... What it overlooks, to put it briefly and crudely, is the fixed structure of human nature. - Jerry Fodor

Don't be a stat cynic:
http://www.debate.org...

Response to conservative views on deforestation:
http://www.debate.org...

Topics I'd like to debate (not debating ATM): http://tinyurl.com...