Opportunity cost: Part 2

Gevlon at Greedy Goblin has a series of posts up about how to help the “middle-class” of WoW earn more gold. By this, he means those people who are constantly poor but are at least trying to actively learn ways to increase their gold resources. His first post was to advise them to download and learn how to use Auctioneer, and the second touched on the concept of opportunity cost (which I had previously posted on).

My own view is that Auctioneer is a useful tool, but in the end it is only a tool. I would not recommend ever trusting the prices given by Auctioneer – they can serve as a guideline, but when posting auctions I would never simply go by the -10% rule used by Auctioneer. Firstly, the prices are simply a statistical average, and as such they are based on historical data. It doesn’t tell you what the price is now, it tells you what the average price has been since the time you started scanning. And with the way prices fluctuated wildly during the initial month of WotLK, those aren’t likely to be very accurate. Furthermore, it doesn’t matter if Eternal Fire’s average price was 60g, if someone is putting it up right now for 30g. Your 54g auctions simply won’t sell. On the other hand, even if the average price is 60g, it doesn’t mean you can’t sell it for 70g on some days when there isn’t any up for sale.

So the moral of the story is, you should always have some knowledge of the goods you are selling and you always have to check the current price anyway regardless of what the Auctioneer price is. Plus, you don’t have to undercut by 10% when -1 gold will do 🙂

But one lesson which I think is very very important is the concept of opportunity cost, which not only covers selling BoEs instead of equipping them but also many other activities both in-game and out. Understanding this alone will allow you to spend your time in a much more efficient and pleasant way because you won’t be wasting your resources.

He mentioned the most common fallacy, which is the thought that “it’s free because I farmed it”. The cost of a herbalist levelling alchemy, is exactly the same as that of any other person levelling alchemy because even though no gold changed hands, the value of goods used up remains the same. It is this idea of something having value even if there is no monetary transaction that can be applied elsewhere.

For example, I also previously mentioned that if you need Eternal Fire, there’s no real reason why you have to farm Eternal Fire (skipping the obvious point of why you have to farm in the first place…). Just do whatever gives you the most gold and buy the materials you need! If you are 80, then perhaps you should do some easy quests or dailies. Each quest normally gives about 13g. At the going rate, that translates to 3 quests = 1 eternal fire. At the same time, you can vendor quest rewards for even more money and you get some faction reputation too.

The funny thing is that people do very strange things because they are extremely reluctant to part with gold. They fail to realise that anything has a value, even if no money changed hands. If spending money gets them even more money in return, then not doing so actually incurs an opportunity cost.

The other day a guildie asked if anyone had Autumn’s Glow, and he would trade any other rare gem for it. To someone who understands opportunity cost, the solution is very, very obvious: sell your high value rare gem e.g. Scarlet Ruby on the AH for 100g, and buy Autumn’s Glow for 50g. Instead, he thinks that it somehow doesn’t cost anything because he exchanged it for something he already owns, without realising that by doing so he foregoes the profit on the Scarlet Ruby->Autumn’s Glow. Of course it goes without saying that this person is dirt poor and also thinks 70g frozen orbs are expensive since “you get them for free by running a heroic”. (Must be something about priests, CoH rotted their brains.)

Another example is how there are many people now relentlessly spamming trade, offering to sell their cooldowns. This is again a big mystery to me. As a miner, why would you sell your titansteel transmute cooldown for 30g? You can easily go to the AH, buy the mats at the market price, do the transmute and make quite a bit more profit selling the titansteel bar yourself. You do exactly the same work, with the exception of a few clicks at the AH that takes less than 1 minute.

A similar situation exists with tailors and their cloth transmutes. Each of the specialisations gets a 100% chance to make an extra cloth when they do their specialised transmute. In TBC, shadowcloth easily sold for 40-50g. But there are still many tailors who will sit around shattrah, filling /trade with “selling shadowcloth spec cooldown, 5g”. Even if you give him all the mats, he still has to fly all the way to shadowmoon valley and do the exact same thing. Since a single cloth already sells for a profit, he is suffering a serious opportunity cost by giving away 2 shadowcloth for 5g. I wouldn’t even fly from Shattrah to Zangarmarsh for 5g…

The common reason why people do this? “I don’t have time/am too lazy to farm for mats to do the transmute myself”. Why oh why do they have to farm when it sells perfectly well with materials bought from the AH? The only possible valid reason why they cannot buy their own mats and use their cooldown to get a bigger profit is because they don’t even have ~150 gold in capital to buy the mats. In which case there is already no hope for them (see the priest who cannot afford 70g for a frozen orb but will run 7 heroics trying to get it…)

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