 Okay, so this is going to be the final full instalment of my Austrian Econ basic series. It is opportunity cost and time preference rolled into one, and I realise I should have covered these topics a lot earlier. Both of them are completely relevant to literally all economic action as they are some of the more sociological backbone of the economic theory that we've covered so far. Rather than explaining how people act, these topics explain why people act in particular ways. They are also very basic in their explanations, so this will be much shorter than the others, and most of the work here will be on you thinking of how to apply the principles in the real world, and I'll give you some hopefully relatable examples to ease you on your way. Opportunity cost is very straightforward. It is the implied cost of performing an action compared to the next best alternative, not a monetary cost that you can measure in cold numbers despite the name. So if you go back to your childhood when your parents gave you 50 pence, cents or whatever to go and buy yourself a treat from the store, you can buy two packs of Haribo at 25p each or one Snickers bar for the whole 50. The monetary cost will always be 50p, but the opportunity cost here is the essentially imaginary cost that you are taking on by choosing one of the options over the other. As the rational individual that I'm sure you are, you're likely to pick whichever option that grants you the most utility, but the utility lost by sacrificing the other option is your opportunity cost. Think about this in regard to every possible trade-off that there is. If you go to university, you do so because you hope your degree at the end of it will mean you can earn more money in your career. But aside from the monetary cost of tuition, you also take on an opportunity cost of three years of work experience and wages while you study that you could have otherwise gained. It's up to you to decide if it is worth losing those three years to defer wages now for higher wages later. And that segues us perfectly into time preference. Time preference can be summarized as patience in an economic sense. If, by going to university, you defer wages now to achieve higher wages later, you are using patience and are displaying what we call a low time preference. Low time preferences are, to pardon the pun, generally preferable. A person who is able to show constraint and delay gratification is more likely to be wealthy. And there are other interesting empirical findings correlating low time preference to high IQ and asking which leads which. And time preference doesn't strictly have to be economic at all. You are more likely to give your child a better quality of life by waiting until you are married, have a house and a stable career than trying to raise a child at 19 while you're earning very little money and have no assets to your name. You can show low time preference by being choosy with your romantic partners rather than having high time preference by going to the club and leaving with the first person that offers. But hey, if life was all low time preference all the time, it would be pretty boring, right? So while you can apply these principles to just about everything, I personally love to talk about it in just economic terms because it has really interesting implications regarding investment and especially when expanding upon the business cycle theory that we covered in the previous episode. So remember back then how I said that low interest rates give off false market signals causing investors to read these false signals and put their investments in places where they aren't demanded as much as they seem, such as promoting short term investment where it isn't needed. Well this all falls under time preference. A market rate of interest would be a direct signal of consumer time preference. In this market interest rate system, the lower the interest rate means more money is being spent at the moment, meaning time preference is currently high and investors should be planning for the short term and build fidget spinners or something. But when the interest rate is high, lots of people are saving, therefore deferring consumption now in order to be able to consume more later. And of course that tells investors to plan for the long term like beginning housing projects. So did that send off a light bulb in your head as to why low interest rates in the 2000s caused a housing crisis? In this sense, those low rates showed investors that people wanted to buy houses right now, so less money went into developing new houses while more went into funding mortgages and not caring about how stable they are. Before you know it, you have that scene from The Big Short where the stripper has six properties and just keeps remortgaging them forever. Then pop goes the housing bubble. Misreadings of time preference are the primary cause of the business cycle and interest rates are supposed to be the best indicators of time preference. But the central bank just dances rates around like a trained monkey with absolutely no regard for time preference, which is literally its whole entire purpose. It just makes you realise how fucking stupid this Keynesian system that we have is. And thankfully this is just one of those days where it makes me want to laugh at the absurdity rather than cry. So there we go. I really should have included this earlier down in the line and applied it to the topics covered as it went along, but hey, this is my first time trying anything like this and I hope you've enjoyed it. As always with this series, I leave it up to you to both read further and apply your own critical thinking to scenarios that the topics are applicable to. And with these ones, you have basically infinite options to do that. The curtain isn't quite fully drawn yet on this series as I'm going to do a conclusions video where I will also list the main sources for each episode. I'll then compile all of the episodes into a single supercut and I'll start planning on how to deliver a further Austrian econ live stream where I can briefly go over some of the intermediate and advanced topics without all the exposition that I've put into these videos. So once again, I hope you've enjoyed the series because I sure have. Take it easy.