Most important concepts we don't teach in school: opportunity cost

Thomas Friedman's recent NYT column is another good example of a fallacy I've written about previously: focusing solely on probabilities and ignoring utilities when doing cost-benefit analysis. Essentially, Friedman thinks that the reasoning behind Cheney's "One Percent Doctrine" is sound, and applies it to the climate change debate. He writes

When I see a problem that has even a 1 percent chance of occurring and is "irreversible" and potentially "catastrophic," I buy insurance.

Really? You just "buy insurance?" Without even asking how much said insurance costs?

The root cause of Friedman's remarkably thorough confusion is the following: he thinks that insurance against the effects of global warming costs less than it actually does, because he is unfamiliar with the concept of opportunity cost. Friedman writes

If we prepare for climate change by building a clean-power economy, but climate change turns out to be a hoax, what would be the result? Well, during a transition period, we would have higher energy prices. But gradually we would be driving battery-powered electric cars and powering more and more of our homes and factories with wind, solar, nuclear and second-generation biofuels. ... In short, as a country, we would be stronger, more innovative and more energy independent.

Every single action we take has a cost in forgone opportunities--the value of the best thing we could have done instead. Producing electric cars, wind, solar and nuclear plants, and second-generation biofuels is no exception. So in the case of climate change, is this opportunity cost worth bearing? It depends on two things: the probability that global warming is real (which is extremely high) and the costs of it if we do nothing about it (which are extremely uncertain). The problem is that Firedman's reasoning simply ignores some of that crucial information.