We are blind as bats when it comes to opportunity cost

Last night, the television program QandA invited renowned philosopher Peter Singer onto the program. (I normally don’t watch QandA because I find it too stressful/annoying and end up yelling at the TV. Last night, for some reason, I watched.)

In the context of debating philanthropy, Singer said something that makes perfect sense to me. I paraphrase:

If it costs $20,000 to train a guide dog in Australia, and $100 to prevent a case of blindness in the third world, should we not consider giving nothing to guide dog charities, and instead giving that money to a charity preventing blindness?

Screen Shot 2015-05-05 at 9.02.50 am

I saw nothing too controversial there. I’ve written before about finding the best value way to spend your charity dollar.

So I was quite surprised when another panellist immediately leapt to the defence of guide dogs.

Don’t stop giving to the guide dogs! said Amanda Vanstone, a former government minister.

Ha! I thought. That’s weird. Doesn’t she see she’s tacitly condemning poor people to blindness by saying that?

But you know, I like fluffy yellow puppies as much as the next person, so I can understand why people might get confused on this topic in the heat of the moment.Screen Shot 2015-05-05 at 9.20.41 am

Then, this morning, I opened the website of my favourite newspaper to see the debate being rehashed again, by senior journalist Neil McMahon

In essence, [Singer] suggested that the costs of funding guide-dog training in the wealthy west compared to the cost of donating to save someone in a developing country from becoming blind in the first place made the latter a better use of your charity buck. “It’s a matter of getting the best value for your money,” Singer said. ‘What’s better – to prevent someone becoming blind or give a dog to a blind person?” The obvious question – can’t we do both? – didn’t come up.

McMahon says we should simply do both!

Does he know that to do both would require doubling our charitable giving?

It is as if the concept of opportunity cost is completely invisible to him. When a charitable dollar is expended in one task, it is not there for another task. The way such choices are made is therefore really important.

With apparently wilful blindness about opportunity cost racking our society, is it any wonder that our society makes so many bad choices, from building very expensive freeways, to how and where we build our submarines to whether or not to feed $10 billion into pokie machines a year.

I’ve tried to write about opportunity costs of purchases in lurid ways, for example:

Rolls Royce drivers are baby killers, and

Buy Australian – about as sensible as Fuck Off We’re Full.

But it’s not sinking in. Apparently, even a quick stint in introductory economics course won’t change that – people who did economics 101 performed as poorly on opportunity cost questions as the population at large. 

Why is opportunity cost so counter intuitive? I’m tempted to spend a dozen paragraphs speculating. But alert to the opportunity cost of having you read on, I’ll stop this post here.

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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

3 thoughts on “We are blind as bats when it comes to opportunity cost”

    1. You’re no doubt right. My perspective would be taken away as I would perceive my own need far more intensely.

      (My perspective probably wouldn’t change if I were going blind in the 3rd world though.)


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