Multiple choice

WHENEVER we upgrade our phone (there’s no longer a need to specify that we are referring to a mobile one), we often need help in transferring data and choosing setting options. Thankfully, there are “default” settings that don’t require any more decision-making on our part.

Choices are part of a business culture that gives consumers many options to choose from.

Economics has introduced the concept of “opportunity cost” in this matter of making choices. This puts a price on the discarded options. Opportunity cost deals with the quantified benefit that is lost when a particular option is set aside, along with the emotional attachments that may apply.

The choice can be purely economic, as in retiring earlier than the mandatory age when offered an enhanced exit package. The discarded option then is to continue working until mandatory retirement and the cost of foregone payroll and bonuses, as well as benefits like healthcare coverage and free parking. The emotional angle of camaraderie in the office or work stresses and verbal abuse from above are not considered.

Some variations in the early retirement package can include the extension of service under a consultancy program where the old monthly salary is now the fee for the advisory position, without the other benefits. The early retiree can also go and work for another company in an unrelated field, even for a lower salary.

As in all economic theories, certain assumptions are implied in this not-so-theoretical choice of working or retiring. Is this a voluntary option? Maybe, the operative theory is not opportunity cost but making the best of a bad situation, or what non-economists may call, “termination in a tuxedo.”

Choices are seldom equally available to a decision-maker. Few, for example, are offered the choice of becoming either a brain surgeon or a professional tennis player. Opportunity cost is irrelevant when we are not qualified or eligible for the missed opportunity.

The TV game show Deal or No Deal demonstrates the concept of opportunity cost. Choosing which briefcase to open does not entail much of an analytical process, except where one of the attaché girls is so fetching that she is left for last.

Selecting a particular briefcase (and its attendant opener) provides instant feedback on the wisdom (or luck) in choosing which briefcase to open. In the final choice between the last pre-selected briefcase left on stage, the host offers a sum of money to forego opening the last briefcase. The contestant understands opportunity cost once the discarded choice is revealed.

Options are seldom static, either in their costs or benefits. There is also a timing angle to consider.

The relative values of two options may change with time as the foregone benefit becomes unavailable when delayed. In deciding on an “elective” medical procedure, postponing a decision may impose an event like a stroke that makes the postponed option no longer available, or affordable.

Once a choice is made, it may be unproductive to “cry over spilled milk,” and compute how much was wasted. The foregone choice ceases to exist and should no longer be relevant, unless it is still available.

Robert Frost in 1916 was probably not thinking of opportunity cost in his much-quoted poem, “The Road Not Taken.” The first lines introduce the economic dilemma — “Two roads diverged in a yellow wood/ and sorry I could not travel both/ and be one traveler…” Frost concludes with a literary version of opportunity cost with his lines: “knowing how way leads on to way/ I doubted if I should ever come back.” He took “the road less traveled by… and that has made all the difference.”

Unfortunately, the concept of multiple choice and picking one either decisively or by default is too routine. Not all these decisions involve a matter of poetic meditation. Sometimes, it is as pedestrian as choosing what to order in a restaurant. There is always the last option of a takeout when too much was ordered — can you wrap this up please?

Tony Samson is chairman and CEO of TOUCH xda.

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