I was in heaven last week because one of my favorite movie channels ran all five Dirty Harry movies in succession.
In Dirty Harry, during that famous bank robbery scene where Inspector Harry Callahan ends up spouting off his “Do ya feel lucky?” line, he gets shot in the leg. It is one of the most memorable movie scenes of all time — certainly as iconic as Sly Stallone climbing the steps of the Philadelphia Museum of Art in Rocky. But, hey, don’t take my word for it — see for yourself:
Not as famous, though, is the very next scene in Dirty Harry, where Harry goes to the hospital to get treatment for his leg wound. Even so, it is a great example of an individual evaluating opportunity cost:
Doctor: Sure, Harry. We can save the leg. (The doc takes out a pair of scissors.)
Harry: What are you going to do with those?
Doctor: I’m going to cut your pants off.
Harry: No! I’ll take them off.
Doctor: But that’s gonna hurt!
Harry: Those pants are $189.74! Let it hurt.
I know. Harry actually said “$29.95” — but Dirty Harry was released way back in 1971. So I adjusted the price to account for inflation.
In case you’re still unsure what opportunity cost is, it’s the cost of a missed opportunity — or, in Harry’s case, the measure of what you’re willing to sacrifice in order to meet an objective.
Harry evaluated the replacement cost of his pants against the pain he would endure in order to save them; not surprisingly, he decided against buying a new pair of slacks. So Harry’s opportunity cost was the pain he could have avoided by allowing his expensive pants to be cut off.
Financial Opportunity Costs
Here’s another example: Let’s say Inspector Callahan wanted to buy a .44 Magnum for $500. Harry’s opportunity cost of buying the gun includes everything he could have done with that $500 if he didn’t buy the gun in the first place. For example, he may have been able to invest that money and earn a rate of return of 6% over a 12 year period. In that case, his opportunity cost would be equivalent to $1,000 in his pocket 12 years from now.
Opportunity Costs Can Take Many Factors Into Account
That hospital scene is a great reminder that comparisons may be made not only on a dollar-for-dollar basis, but also with respect to quality of life and or personal preferences.
In our everyday life, it doesn’t usually make sense to make decisions based solely on a dollar-for-dollar cost comparison. In fact, emotional factors are a perfectly legitimate reason for making certain decisions. After all, many people willingly pass up the potential for greater returns in exchange for the peace of mind that comes with paying off the mortgage as quickly as possible.
Opportunity Costs Are Unique For Everybody
I have an awesome father-in-law named Tony who is an outstanding car mechanic. He’s retired now, but he’s still a mechanic. As such, it should come as no surprise that he cringes whenever he hears that I pay a mechanic to maintain and repair my cars.
For Tony, the opportunity cost of doing the job himself is much different than it is for me. Not only does Tony know what he’s doing, he has the tools and the place to store them. He also doesn’t mind getting his hands dirty. And since he’s retired, he has the time.
For me, it’s a different story: After I factor in the value of my time to make the repairs, my lack of tools and a general dislike for grease and grime — not to mention the frustration I would be subjected to just trying to finish the task — the costs of paying a mechanic to fix my cars become easy for me to swallow.
The Effect of Personal Preferences
As financial opportunity costs decrease and emotional opportunity costs increase, it only makes sense that we’re more likely to choose what we enjoy doing.
For example, the Honeybee and I decided to become a one-income family after our son was born — even though our net household income would have been greater if she had kept her job. After weighing the opportunity costs, we ultimately decided that the extra income was less valuable than the intangible benefits of a stay-at-home mom.
There are plenty of other examples that I’m sure you can come up with too.
When it comes to opportunity cost, the bottom line is this: Those who take the time to properly evaluate it will improve their financial well-being and optimize the value of their time.
And if you don’t believe me, just ask Harry.
Photo Credit: public domain
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(This is an updated version of an article that was originally posted on March 20, 2009)
I love all your articles,and I might add I am your #3 Fan.
and father in law.And very proud of it.
😊
Tony you are a super guy. 😊
He sure is, Jolynne!
Aww, Dad. You’re making me blush in front of all these people! 😊
Hey, if you’re not busy next week, do you think you can catch a plane to the West Coast next week. My car has been running a little hot lately.
Len
Len,
I do like your columns. And I’m not even related! 😊
Aww, thank you, ani! That’s always nice to hear. (Consider yourself an honorary member of the Penzo clan!)
The most memorable Dirty Harry quote is:
“A Man’s gotta know his limitations”.
You can use is for many purposes. In my opinion there are lots of natural happenings that humans are foolish enough to believe that they can do something significant about. Global Warming may be one…but so are quakes, hurricanes and tornadoes.
Well said, Robert.
This post is eerily like this exact conversation with my dad — down to every minor detail — that I had when I was in high school.
I said: “Hey Dad, you can save a bunch of money by working on your car yourself!”
Dad said: “I can earn much more money per hour working (yep, he’s also an engineer) than I could fixing a car myself.”
Of course, he doesn’t know how to fix cars, so he’d be mega-slow at it. But the lesson stands.
Yep. Like your Dad, Paula, I don’t know much about fixing cars either! LOL
Counting the cost is not always considering the money involved. Just like your example with your own family. You were willing to sacrifice another income just so your wife can stay home with your kids…now that is a better deal. For my family, we’d rather rent a small place rather than a bigger but expensive house. We don’t feel like it’s worth working for the high rent and not even enjoying your stay there anymore since you’re too busy earning for the rent. Besides, it’s easier to clean a smaller house. 😊
It’s true, Shine! Larger houses require more effort and time to clean, which is another opportunity cost.
Haiku writers know
the opportunity cost
of one syllable.
I wish I could take credit for that poem, but I can only claim to have memorized it when I first saw it.
I haven’t seen the movie in a couple of decades, but first thought was: Wouldn’t the pants have a bullet hole in them. Wouldn’t they be covered in blood? Apparently, Hatty had a lot of faith in his tailor AND his dry cleaner!
I sprained my ankle years ago, and had a similar conversation with a Dr. “Do you know how much jeans cost???” We finally agreed that he could cut them along the seam, (just to the knee!) so they could be repaired. Lol
I am a fan of Dirty Harry movies because of his lines! But, I wasn’t able to watch the movies in succession. 😭
Cleaning the house. I’m not good at it and I dislike it. So I hustle a little more so I can pay someone to clean it for me.
“… comparisons may be made not only on a dollar-for-dollar basis, but also with respect to quality of life and or personal preferences.”
With “Grandfather”, money loses most of the time.
Life is short enough as it is, there is no point wasting it!
Personally, I think opportunity cost is the most underrated concept in economics, it’s the first one we should think of when we make a big lige decision.
I never thought I’d read an opportunity cost article featuring Dirty Harry. Len, you are a hot mess of random. I have a friend from eastern Europe and I’ve had to have the OC talk with him several times. He’s a network engineer. He’ll spend hours trying to fix a strut bumper on his car. When I ask him why he doesn’t take it to the shop, he says he doesn’t want to pay the cost of fixing it. Meanwhile, his wife is pissed because the car is in pieces in the driveway for weeks and his kids aren’t getting in daddy time. I explain it could be all over with in a hour and that money is money “well spent”, he can’t fathom it. That’s not how things work in his country. Money spent is money spent, period. OC isn’ t even in the lexicon.
Well, Stacy … this is the “off-beat” personal finance blog for responsible people! As such, I cover a cornocopia of topics here. 😃