Final answer:
If your opportunity cost of money is about 10.0, it indicates the potential 10% return you forfeit when making a financial decision. Economists view this concept differently: mainstream economists view opportunity costs as consistent across scenarios, while behavioral economists believe decisions are made relative to a reference point and in terms of percentages. Opportunity cost can alter behavior, as seen when daily expenses are framed as potential savings for a vacation.
Step-by-step explanation:
If your opportunity cost of money is about 10.0, it means that for every decision you make that involves money, you have a foregone alternative that could have potentially provided a 10% return. The concept signifies the next best alternative forgone when a decision is made.
For instance, if you choose to spend $100 on a concert ticket, your opportunity cost is what you could have earned had you invested that $100 elsewhere, such as in a venture that earns a 10% return.
This idea not only applies to financial decisions but also to time management and other resources. Mainstream economists argue that rational decision-making involves considering opportunity costs as equivalent across different scenarios.
Meanwhile, behavioral economists suggest that people often assess gains and losses relative to a reference point, such as the cost of a product, and tend to think in terms of percentages rather than absolute savings.
An example of the impact of opportunity cost on behavior could be the decision to buy lunch every day at work versus bringing it from home.
Although the immediate cost difference might seem minor, when the annual accumulation of that cost is framed as something more desirable, like the opportunity to have a vacation, people might make a different choice. This illustrates how the presentation and perception of opportunity costs can influence decision-making.