1.3 Opportunity Costs and Sunk Costs Lecture

What is opportunity cost?

The value of the next best alternative that is forgone when making a choice.

What are the obvious costs of attending college?

Tuition, room and board.

How does earning potential affect opportunity cost?

The higher the potential earnings one could miss, the greater the opportunity cost of attending college.

What is the real cost associated with free offers?

The time spent waiting for the free offer, which could be used for other activities or earning money.

What is a common mistake in evaluating opportunity costs?

Considering all alternatives instead of just the next best alternative.

What is a sunk cost?

Expenses that have already been incurred and cannot be recovered.

What is the behavioral insight regarding sunk costs in decision-making?

Rational choice suggests ignoring sunk costs when making future decisions.

What is an example of poor decision-making related to sunk costs?

Continuing to repair a car that has already incurred significant prior expenses.

Why is it important to understand opportunity costs and sunk costs?

It is vital for making informed and effective decisions in life and business.

What emotional factors can influence the assessment of opportunity costs?

Emotional factors, such as hurting a friend's feelings for not attending an event.