OPPORTUNITY COST IN ECONOMICS AND FINANCE: WHO HAS IT RIGHT?

A review of textbooks in the BA in Business Administration shows that the concept of opportunity cost must be distinguished from the principle of forgone-opportunity-based assessment. The latter is shared and undoubted; the former is used only in economics and finance, and it is not well defined. A review of best-selling textbooks in economics and in finance reveals that there are two major discrepancies in economic definitions: (1) Opportunity cost may be defined as forgone goods, or forgone achievement of goals. (2) Opportunity cost compare the desired outcome of a course of action with a benchmark that may be ambiguous. Compared to economics, opportunity cost seems to be a non-issue in finance. All the reviewed finance textbooks use the concept of opportunity cost consistently. The field of finance better upholds the scientific and educational standard of clarity and consistency of delivery of knowledge.