AndrewH’s observation and opportunity costs

In his dis­cus­sion of “cry­ocras­ti­na­tion”, An­drewH makes a pretty good point. There may be some bet­ter things you can do with the money you’d spend on cry­on­ics in­surance. The sort of peo­ple who are into cry­on­ics would prob­a­bly ac­cept that donat­ing it to the Sin­gu­lar­ity In­sti­tute is prob­a­bly, all in all, a higher util­ity use of how­ever many dol­lars. An­drew’s con­clu­sion is that you should figure out what max­i­mizes util­ity and do it, re­gard­less of how small a con­tri­bu­tion is in­volved. He’s right, but I want to use the same ex­am­ple to push a point that is very slightly differ­ent, or maybe a lit­tle more gen­eral, or maybe the ex­act same one but phrased differ­ently.

Con­sider an ar­gu­ment fre­quently made when poli­ti­ci­ans are dis­cussing the bud­get. I fre­quently hear peo­ple say it would cost be­tween ten and twenty billion dol­lars a year to feed all the hun­gry peo­ple in the world. I don’t know if that’s true or not, and con­sid­er­ing the re­cent skep­ti­cism about aid it prob­a­bly isn’t, but let’s say the poli­ti­ci­ans be­lieve it. So when they look at (for ex­am­ple) NASA’s bud­get of fif­teen billion dol­lars, they say some­thing like “It’s crim­i­nal to be spend­ing all this money on space probes and ra­dio telescopes when it could elimi­nate world hunger, so let’s cut NASA’s bud­get.”

You see the prob­lem? When we cut NASA’s bud­get, it doesn’t im­me­di­ately go into the “solve world hunger” fund. It goes into the rest of the bud­get, and prob­a­bly gets di­vided among the Con­gress­man John­son Me­mo­rial Fish­eries Mu­seum and pur­chas­ing twelve-thou­sand-dol­lar sta­plers.

The same is true of cry­ocras­ti­na­tion. Un­less you ac­tu­ally take that money you would have spent on cry­on­ics and donate it to the Sin­gu­lar­ity In­sti­tute, it’s go­ing into the rest of your bud­get, and you’ll prob­a­bly spend it on coffee and plasma TVs and fa­mous statis­ti­cian trad­ing cards and what­ever else.

I find my­self fre­quently mak­ing this er­ror in the fol­low­ing way: a beg­gar asks me for money, and I want to give it to them on the grounds that they have ac­ti­vated my urge to help peo­ple. Then think to my­self “I can’t jus­tify giv­ing the money to this beg­gar when it would help many more peo­ple if I gave it to a re­spon­si­ble char­ity.” So I say no, and for­get all about it, and never give the money to any­one. Even though (from a char­ity point of view) I know of a su­pe­rior al­ter­na­tive to giv­ing the money to the beg­gar, I would still be bet­ter off just giv­ing the beg­gar the money!

All this means that for any en­tity that does not use its re­sources with max­i­mum effi­ciency, the op­por­tu­nity cost of spend­ing a cer­tain amount of re­sources should not be calcu­lated as what you’d get earn from the best pos­si­ble use of those re­sources, but what you’ll earn from the use of those re­sources which you ex­pect to ac­tu­ally oc­cur.