ation, the funds could have been put for other use, like medical care or pensions.
In a world never succeed in solving the problem of scarcity, we need to live in a life with efficiency, trying to use finite resources to meet infinite demands, to get as much as we can out of our life. We have to make mountains of choices among competing alternatives, while we choose something, we have to give up some other things, for we cannot have enough time and money to go through all kinds of options, that is why many people who is not satisfied with the already results always wonder “what if I choose the other alternatives?”
So to reduce the possibility of regret, in other words, to lower the opportunity cost, whenever we make a choice, we need to take as much as factors into consideration (Bastiat, 1848).
However, one thing we have to admit is that if we really do like this, life would be very hard for us, which may be contrary to an efficient life, all we have to do is considering the opportunity cost, rather than other cost like sunk cost, which has already occurred and cannot be recovered, or historical cost, the original monetary value of an economic item (Russell, 2007).
Opportunity cost is the kind that always looks forward, regardless of what and how much you have put already. So even though you have a striking record of investment, it only can act as a proof that substantiates your ability to invest. You still suffer an opportunity cost at the time of your decisions, each of them will be confronted with opportunity cost, the so-called sunk cost or historical cost could work as experience or a lesson. As for the difference between these concepts, I would like to list several examples to discuss.
Firstly, in terms of the difference between sunk cost and historical cost, take the repair of a mobile for an example, my phone breaks down again, the option of fix it again is not linked with the repairing fees of the first time (the sunk cost), although the
history of repair may deter me from repairing it and encourage me to buy a new one (if my pocket allows me). Seldom would any one try to persuade me that since you have already spend quite a few money fixing it, you should fix it again, or you will lose the money you had invested. Instead they would try to suggest me that if the second repair could be more favorable to my present situation and worth me a second repair, then fix it, vice verse. For the cost of buying a smart phone with high performance become low due to the development of the science technology. If I can afford to buy one and do not need to use the money for more urgent use, then I can buy a new one. But the more urgent use or other use become the opportunity cost.
On the other hand, due to my wrong judgment, I bought some falling stocks at a high price, which I had expected to make a fortune and cost me almost all the savings I have, but unfortunately, it drops as fast as the a free falling body and even drives me almost mad. When I made up my mind to sell it to get the money for food, if I told the prospective buyers that since it cost me a lot, it was only fair that I got my spending back plus a little profits, it is unlikely for you to sell the stock and what is likely to occur is that the buyer send you to a psychiatric center out of humanity. Market prices are determined by the demands and neglect history.
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