Imagine you’re at the mall to buy some new shoes for work. But while you’re at the store, a cashmere sweater also catches your eye. You don’t really need a sweater… but it’s pretty, and it’s on sale for $50- that’s 40% off! What do you do? And how do you reach that decision?
In that moment, you’d probably see two obvious choices: you can either buy the sweater, or you can walk away. And in your head, you might even frame it as “do I want to spend this $50?” But would your considerations go beyond that particular moment in time? Or would it simply be framed as “to buy, not to buy; to spend, not to spend?”
There’s a concept called opportunity cost that helps us think about the impact of our decisions. Opportunity cost describes what we lose out on when we make a specific choice. Let’s say we have the option of spending our Friday night doing one of two things: spending time with friends, or finishing our taxes. If we choose to spend time with friends, the opportunity cost refers to the productivity we lost by NOT doing our taxes. The concept of opportunity cost can easily be applied to financial decisions and consumer behavior. In the case of the sweater, the opportunity cost speaks to the $50 we no longer have to spend on something else. It’s not just whether you choose to spend that $50 in that specific moment: it’s whether you’ll want or need that $50 for another purchase, at another time.
I recently stumbled upon an app created by Dan Ariely that helps consumers think about the opportunity cost of their decisions. It cracked me up, but it makes a good point. Oranges2Apples lets users input the cost of something they’re considering buying, then spits out alternative options of what they could buy with that money. The screenshot example shows “a cool shirt” as the desired purchase, and then shows three other ways the money for that shirt COULD be spent. The app then asks the user if he still wants to buy the “cool shirt” now that he realizes there’s so many other things he could do with that money. This app builds off of studies that show that people simply don’t think of opportunity cost on their own- but if they’re prompted to consider it, they’re much more likely to watch their spending.
Now, this app obviously can’t govern your actual behavior- there’s no way for it to check up on what you decide to buy (yet!). But it’s a really interesting concept, and I’m sure it makes its users stop and think for a second. Unfortunately I don’t have an iPhone, so I can’t download it. If you DO have an iPhone, give it a shot! After all, it’s free– so your only opportunity cost here is the time you might spend playing with it.
P.S. I highly recommend spending some time on Dan’s website to watch some lectures and read some of his articles. Absolutely fascinating stuff over there!