Opportunism

Published Apr 29, 2024

Definition of Opportunism

Opportunism is a term used in economics, and more broadly in social science, to describe the practice of seeking personal gain or advantage by exploiting circumstances or using guile, often with a disregard for principles or consequences for others. In economic contexts, it often refers to actions that go against the spirit of a contract or the norms of a marketplace, exploiting informational asymmetries or situational advantages for one’s own benefit.

Example

A classic example of opportunism can be found in the used car market, also known as the market for “lemons.” Here, the sellers have more information about the quality of the car than the buyers. An opportunistic seller might exploit this information asymmetry by overrepresenting the quality of a car or concealing its defects to sell it at a higher price. This behavior not only affects the buyer, who may overpay for a low-quality vehicle, but it can also lead to a general distrust in the market, leading to market failure.

Another instance is during natural disasters, when some businesses dramatically increase the prices of essential goods like water, food, or shelter, exploiting the desperate situation of the affected people for profit. This is often referred to as price gouging.

Why Opportunism Matters

Opportunism can have significant impacts on market functioning and efficiency. It undermines trust and increases transaction costs, as parties have to invest in safeguards like warranties, detailed contracts, and inspections to protect against potential exploitation. In extreme cases, it can lead to market failure, where the market does not produce an efficient outcome or does not function at all because participants are too concerned about being exploited.

Moreover, opportunism can affect relationships within businesses and between firms. When employees, managers, or firms act opportunistically, it can lead to a breakdown in collaboration, reduced morale, and a culture of suspicion that hampers innovation and productivity.

Frequently Asked Questions (FAQ)

How do markets or organizations attempt to mitigate the effects of opportunism?

Markets and organizations employ various mechanisms to mitigate the effects of opportunism. These include the development of comprehensive contracts that specify the rights and obligations of all parties, the enforcement of regulations and legal frameworks that punish deceptive and opportunistic behaviors, and the fostering of reputational mechanisms whereby the marketplace rewards those who act in good faith and punishes those who don’t. Additionally, organizations might invest in relational contracts that are based on mutual trust and shared benefits over time, reducing the incentive for opportunistic behavior.

Can opportunism ever be seen in a positive light?

While generally viewed negatively because it involves exploiting others, opportunism can sometimes be seen as a catalyst for innovation and efficiency. For instance, entrepreneurs often exploit market inefficiencies or gaps by identifying and seizing opportunities faster than their competitors. However, whether this is considered positive opportunism depends on the means by which the entrepreneur operates and the overall impact on the market and society.

Is there a difference between being opportunistic and being strategic?

While both opportunism and strategic behavior involve recognizing and acting upon opportunities, the key difference lies in the approach and ethical considerations. Strategic behavior is about planning and executing actions based on long-term goals, competitive advantage, and mutual benefits, often while maintaining ethical standards and considering the implications for others. Opportunistic behavior, by contrast, focuses on exploiting immediate opportunities with less regard for ethics, long-term consequences, or the impact on others. Essentially, being strategic is about creating value in a way that is sustainable and beneficial for all stakeholders, while opportunism is often about extracting value, sometimes at the expense of others.

In conclusion, while opportunism is an inherent part of human behavior and market operations, its negative impacts on trust, efficiency, and market integrity highlight the importance of mechanisms and cultures that encourage transparency, fairness, and long-term value creation over short-term gains.