Greedy Goblin

Wednesday, April 16, 2014

Opportunity cost

I was badly ill in Sunday-Tuesday. You can guess how badly from the fact that for the first time since 2007 there was no blogpost on a workday (yesterday, the Monday post was pre-written). I'm still ill of course but now I'm capable of both playing EVE and blogging. Why is it interesting? Because this unscheduled 2 days stop in trading cost me twice as much as losing my wormhole, serving as a good lesson on opportunity cost.

Dumb people believe that their property is in their hangar and losing it demands a previously existing item to be destroyed. Accordingly, the appearance of a new item in their hangar is gain. Smart - therefore rich - people know that most of their assets are their abilities. I was stopped from using my ISK making abilities by being unable to be away from my bed for longer than a few minutes. If I could play, I could run my usual trading routine, earning ISK. So far, it's clear to all.

However you can avoid using your abilities by using them on something less than optimal. For example if I'd go mining in my trading time, using all my accounts (assuming proper pilot skills), I could earn about 0.4-0.5B, instead of 3.5 what was expected from a Sunday and a Monday. That's losing 3B in opportunity cost, while a moron would claim 0.5B free ISK. I hope the interpretation "opportunity cost = cost of underutilizing your abilities" is more clear than the exact definition.

As advanced course let's consider the cost of running missions in highsec under wardec instead of using a neutral alt or "saving" the fee of the JF transport services of your alliance by using a wardecced inty or a terrifit covops hauler. Finally, you can save mony by not having a neutral alt who drives your JF in highsec.

20 comments:

Provi Miner said...

interesting, however you are comparing your desired skill set against an imaginary equal. I submit that equal does not in fact exist. So your comparision to the mining is for naught. A miner who "desires" to mine will see fair value in that .5 billion. A mission runner will see value in that .2 billion. So are they mis-using their time? No instead they are getting the highest and best use of their time by the standards they operate under. BTW you should be thankful that not everyone wants your skill set otherwise there would be no market for you goods. But interesting, and yes a war dec is a war dec and unless you know exactly what you need to do to avoid it you should consider a war dec an opportunity to explore low/null/wh space and see what exactly is on the other side. Glad you are better.

Anonymous said...

While technically you are not wrong, you often apply opportunity cost where there is none. Let's take your wormhole example, since you already put it up. You could say that the people who evicted you had great costs, since they could be mining at that time, or whatever earnes them isk. But if those people would not do it anyway, for any reason, there are no costs. I've seen many times you make that simple mistake. Opportunity costs only arise where there is, well, an opportunity which a person could/want to take.

Dunamis said...

Sorry to hear that you were ill Gevlon - hope you're feeling better soon though! :)

Opportunity costs are clearly something that the vast amount of people don't consider on a daily basis; both in reality and in EVE. I'm curious though how someone just starting out would determine which activity is the "best" for them? Is it simply bookkeeping and tracking ISK/hr, ISK out/ISK in, or whatever?

I know you're a big fan of efficiency purely in terms of the numbers, but surely if you're at one end of the spectrum and the "for fun" socials are at the other end, what about the guys somewhere in between?
Like Provi Miner said, different people are going to value different activities in different ways - not just purely from a financial point of view. I think that the average person who reads the blog would still need to factor that in too - I mean, even if they were making ISK 10x faster, and they then found the game boring, they may quit playing, reducing their long term income to 0.

Of course, we already know you enjoy market trading the most, and it's clearly handy that it's very efficient at making money too.
But I do wonder if there was a more efficient way (or even several) to make ISK easily and reliably on a regular basis, if you would heavily focus on that activity and abandon market trading? Maybe you'd still do the trading "for fun" though? :P

Anonymous said...

Hope your recovery continues OK - I miss the blog even when I disagree.

To me, the joy of Eve is to play to a variety of goals at different times, so I might be trading with a goal of x billion ISK per week, |PvPing to get a killboard efficiency or to get solo kills of equal class, griefing to see if I can make someone swear in local, or even PvPing to see who can lose the most ship-value in an hour. All valid game aims, and I dont think people are morons for pursuing them. However, if a player is playing to make ISK your analysis is right.

Jean-Mira said...

@Anom0659 "But if those people would not do it anyway, for any reason, there are no costs. [...] Opportunity costs only arise where there is, well, an opportunity which a person could/want to take."

You are right, that opportunity cost only arises when there is a choice to make.

But implying there is no choice, if you are not willing to choose is wrong. The choice is there anyhow and not choosing implies a passive choice and invokes the opportunity cost just the same.

Even if you don't care about ISK, there are ISK not earned, even if you don't care about the opportunity cost.

Even if you don't care about PvP, there are kills not made, even if you don't care about kills.

...

Dàchéng said...

I want to go back to the reason we play games, which is to have fun. Sure, games provide other benefits, but they are not why we play games (except where they contribute to us having fun). I know, Gevlon, that you claim not to do things "for fun".

Let's look, then, at the opportunity cost of trading, at about 500MISK/hour, which I think is around the top of your range.

A plex costs 700MISK.
A plex costs $20.
Therefore 500MISK/hour is worth $20*500/700, or around $14.

What is the opportunity cost of playing EVE instead of taking on a second job? Or starting a business venture that you expect will net you more than this amount? Should you quit station-trading and work more, since it provides more $/hour?

The answer to that is given by anonymous@06:59. There is no opportunity cost if we don't want the opportunity. In other words, if you don't want to (or can't) work all possible hours at your job, there is no opportunity cost to not doing so, because it wasn't an opportunity you wanted to take (or could take) in the first place.

This comes back to fun. We play games to have fun. We work to provide ourselves with the resources we need to survive first, and then to have fun.

And here is the real opportunity cost: the more we work, the less time is left for having fun. That is the real opportunity cost.

So to return to where I started: we play games to have fun. You play EVE to have fun. You like making ISK. That's fun for you. The miner who earned 0.5B while mining was having fun. He is not a moron for so doing. The really moronic thing would be in passing up the opportunity to have fun, in order to do something that is no fun to him, such as trading.

Sean Nico said...

By this logic you are losing money in real life by using your time and skills making imaginary currency rather than real currency.

Anonymous said...

@Dàchéng

Fun is for morons and slackers and socials.

Gevlon said...

@Dacheng: do you really see no bigger goal in your life than having fun? That's what you want to be written on your headstone "had fun"?

Pathetic.

Lucas Kell said...

@Gevlon
What's the point of living our short and insignificant lives if we don't enjoy ourselves? At the end of the day, we don't take anything with us when we inevitably expire, so if we can enjoy life and help others to enjoy it as we go along, what's the problem?

Out of curiosity, what do you want written on your headstone?

Anonymous said...

Huh.

Gevlon, this last reply you gave is absolutely against a very old blog post that you made, in which you claimed that 'good enough' is a goal that everyone should be pursuing.

I liked that one more, simply because attaining a state of 'better' has increasingly diminishing costs.

Plus, as an existential realist, I really would not care what is written on my headstone. I'll be dead.

What I do and what I have is 'now' .Flopping around to get a bigger headstone on which stuff I won't care about anymore is written, just so I can impress future generations I don't care about is moronic.

Anonymous said...

"Even if you don't care about ISK, there are ISK not earned, even if you don't care about the opportunity cost."

If you take opportunity costs at face value, then yes. But you cannot use it as an argument against someone, since it's all just theoretical. The income would never come. The discussion about it becomes meaningless. Real opportunity costs only arise when there was a real possibility of avoiding them.

"do you really see no bigger goal in your life than having fun? That's what you want to be written on your headstone "had fun"?"

That is an interesting question, one that can be applied to you as well. Do you really see no bigger goal in your life than having a big number in some game? Would you rather have "he lived fully and enjoyed his life" on your headstone or "his x number was y in game z"?

Gevlon said...

http://greedygoblin.blogspot.hu/2013/06/why.html

Anonymous said...

@gevlon

So you want your methods to outlive you. Fair enough. Yet, I wish to ask, what significance are the things you proclaim to us? It still comes down to the question you asked - what do you want to have on your headstone. Will it be important that you invented some clever mechanics in some game? A year after eve closes, no one will remember it. Yet people will remember the emotions they experienced and people they met. No one will remember that some player took x hours a day to reach y isk. No one will remember what value isk was. Surely, we won't forget the fun we had. You don't see it, OK that is your way of things. It's interesting how things work out. To close, I can ask you - what impact the things you did in wow had? Did anyone remember you or what you did? Or, most importantly, did your real life improved because of it?

Gevlon said...

Trading in EVE isn't different from trading in real life. Nor the concept of Opportunity cost. These are things they can learn within the game and apply to their real life.
Let me oversimplify it:
- someone learned trading: someone who might become a businessman when he grows up
- someone learned to count ISK and farm: someone who'll be a decent worker
- having fun in frigates: yet another junkie, drunkard, flower child

Anonymous said...

@Gevlon

Oh, those are pretty far-reaching implications you are trying to sell us here. If someone wants to start a business, he would need to learn a lot more than some basic tips shown in a game. In reality, all there is to eve is to find an item that sells low and then sell it higher + some patience. There is nothing more to it and this is elementary school knowledge. True, not all people apply it in the game, but not everyone is into doing business. If someone thinks doing real life business is so simple, well, he will fail miserably. I know, I ran my startup for years and reality is much more complex. If you want to be successful, you need backing => you need to be social. To your investors, coworkers and clients. Or you can be a drone working in a cubicle all life. Which one wins by your metrics?
Someone learned to count ISK and farm you say? I say that is pretty much what every working person does. Work for money - that's all your are saying here. Do we really need some person in Eve explain it to us? Yet having fun is what enriches our lives and what we spend our earned money on. Do you remember what you were doing at work 1 year ago? Or is it more probable that you would remember an exotic vacation, done purely for entertainment and relaxation? Fun is the reward for our work; not even more work. People earn and count money each and every day. And no one will remember any of them for doing so.

jstk said...

Funny. I was also away for 3 days and came back to my trader alt with around 5.5b worth of stuff. The first thing I thought was "facepalm", because a lot of these items devaluated enough overtime for me to incur several losses on reselling them, as well as canceling many buy orders for stuff that had already tanked up its profit margin.

All of this equals to lost money too.

Anonymous said...

- someone learned trading: someone who might become a businessman when he grows up
- someone learned to count ISK and farm: someone who'll be a decent worker
- having fun in frigates: yet another junkie, drunkard, flower child


Confirming that Gevlon thinks people who have funs are junkies, drunks or hippies.

Do you honestly believe this? and if you believe that if you are good at trading in eve you could be good at trading in real life, i'm going to assume you are fabulously wealthy stock broker then, worth millions upon millions of dollars? if not why not? surely the skills just magically transfer from one to the other?

Of course you could look at it another way - a successful businessman uses "lolling in frigates" as a way to relax. He doesn't care about in game isk, because he plays a video game for fun. He spends 60 hours a week working hard in real life, maximizing his opportunity, and decides to use his spare time doing something he enjoys doing.

@Dacheng: do you really see no bigger goal in your life than having fun? That's what you want to be written on your headstone "had fun"?

Pathetic.


Actually, this would be quite awesome. "He Had Fun" on a head stone would be amazing. Because after all, what is the worth of life if you are not enjoying it to its fullest? Sure other things can be rewarding, but enjoyment is its own reward.

Dàchéng said...

Anonymous@16:57 wrote:
Gevlon, this last reply you gave is absolutely against a very old blog post that you made, in which you claimed that 'good enough' is a goal that everyone should be pursuing

I, too, remember that post. It is here:
http://greedygoblin.blogspot.de/2009/03/good-enough.html


Gevlon, ignoring most of what I wrote up there, replied:

do you really see no bigger goal in your life than having fun? That's what you want to be written on your headstone "had fun"?

Pathetic.


I really do see no bigger goal in my game than having fun. That's why we play games. You have no idea what else I do in real life. I don't know what else you do in real life, but if you think you can change the world by playing a game, you have another think coming!

As for my gravestone, why would I care what it says? I will not see it. But it seems you do care about what yours might say.

Anonymous said...

There seems to be some confusion in the comments between Opportunity Cost and Utility.

Opportunity Cost is literally everything that you could be doing instead. Petting the cat, spending time with the SO, studying, taking the trash out, working, etc... There are literally a million other things you could be doing instead, including nothing.

Utility is what you value at any given time. If you're starving, a banana has amazingly high utility. By the time you've eaten three or four in a row, not so much. Utility allows us to make opportunity cost decisions rationally so we choose the activity with the maximum value to us, but it doesn't mean that the lost choice consequences and missed opportunities are wiped away just because we don't care about what we might have gotten from them. (Ask any MMORPG divorcee.)

So, for example, an EVE sadist might want to watch someone cry more than making 500 MISK/hr, and would prefer PVP because of that, but he might sometimes choose to switch to money making when he needed to buy more tools to make people cry. Whereas a person who derives pleasure from having a high ISK lifestyle in the game would prefer to spend most of his time and skills on ISK making activities, and might only engage in PVP when assets are threatened.

Both players are right, because both players are actively maximizing their utility (derived pleasure) from the game.