quote:Originally posted by scholar: We get annoyed with how the family members tell the contestants that they should keep going because they deserve good things, as if that actually affects what is in the suitcase.
Clearly not a gambler. These things matter!Posts: 4313 | Registered: Sep 2004
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posted
The tricky thing about money is to remember that the more money you have, the less each additional unit of money is worth.
Posts: 8120 | Registered: Jul 2000
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quote:Originally posted by Tresopax: The tricky thing about money is to remember that the more money you have, the less each additional unit of money is worth.
Uh...my gas is $3.49/gallon, whether I'm rich or poor.
Posts: 4313 | Registered: Sep 2004
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quote:Originally posted by Tresopax: The tricky thing about money is to remember that the more money you have, the less each additional unit of money is worth.
Uh...my gas is $3.49/gallon, whether I'm rich or poor.
Right, but we're (presumably) talking about value with respect to "utility" here, and not in terms of quantity of dollars possessed. If you're loaded, $3.49 means less to you than it would if you were working from paycheck to paycheck.
It's a case of diminishing marginal utility.
Posts: 433 | Registered: Feb 2005
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I think what Tres might be referring to is the idea that there's decreasing marginal utility to money - generally people tend to care less about getting that 101th dollar than they did about getting the 1st dollar or even the 100th dollar. This is equivalent to the idea of people being risk adverse (rather have $499 than a 50% chance of $1000 & a 50% chance of nothing).
People also tend to show decreasing absolute risk aversion - the more money you have, the more risks you're willing to take. There's also nonincreasing relative risk aversion - people are willing to take higher risks in proportion to their wealth as their wealth increase. So you'd be more willing to take a gamble with $100 if you have a $1000 than you would be willing to take a gamble with $5 if you have only have $50.
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If you would not do something for a million dollars, there is very little chance you would do it for ten million. But if you wouldn't do something for 10,000 you may do it for 100,000.
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quote:If you would not do something for a million dollars, there is very little chance you would do it for ten million.
I'm not sure I agree. I am confident that if I had ten million dollars, I'd be set for life. I am far less confident that I could safely retire right now if I only had one million dollars.
I would be much more likely to do something that could keep me from ever being able to work again for ten million dollars than for one million.
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The answer to the question in the thread title doesn't really have anything to do with my answer to the question posed in the post. My expected return on choosing option I is $500,000, and option II is $695,000. So in any game of chance I would choose II if I was going strictly by the numbers. But like Eros and others have mentioned, the utility of having that much money outweighs the chance of having much more. So I may be inclined to choose I. Though knowing me I'd probably go with II anyway.
This is similar to how in a poker tournament I may conceivably make a decision to not play in a pot where the numbers say I should stay in. This happens if I'm on the cusp of "getting in the money". Since winning the pot may only make me marginally better off on the table while losing the pot could cost me any chance of getting paid off at all(which is actually why the time just before the cutoff for who makes it in the money is a great time to be aggressive and steal pots from people who are wary of risking not getting paid off).
going back to the original question though, I think it is rational. Assuming happiness does not equal money. And given that assumption, taking the utility value of that money into account(and whatever other factors you can think of) is the only rational way to go about it. Though from a completely monetary perspective, yes, II and 2 are the obvious correct answers.
Posts: 8741 | Registered: Apr 2001
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quote:Uh...my gas is $3.49/gallon, whether I'm rich or poor.
For a very rich peson, paying $3.49 for gas might just mean he has $3.49 less to invest in stocks. For a very poor person, paying $3.49 for gas could mean he doesn't have money to buy food for his family that day. So, I would say the gas literally costs more for the very poor person than for the very rich person.
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