Opportunity Cost Neglect

What is opportunity cost neglect?

Opportunity cost neglect occurs when a decision gives too little attention to what must be given up: other uses of the same money, time or resources.

Frederick and colleagues (2009) found that simple reminders of alternative uses of money changed purchase decisions. Making forgone purchases explicit could reduce willingness to buy and increase selection of less expensive options.

For example, a purchase decision can compare the item with keeping the money for something else, rather than treating the choice as buying versus receiving nothing. This does not mean the cheaper option is always better. The relevant issue is whether the forgone alternative has been considered. The same question applies to time: an hour spent on one project is an hour unavailable for another. Whether a reminder improves a particular decision still needs to be checked.