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Wealth has diminishing marginal utility. You're suggesting that it is increasing.

by ouid 10y ago

IanCal 10y ago
I don't think that's true in the general case. For example, one penny has virtually no utility to me on its own, but there's plenty I can do with one pound, getting more than a hundred times the value from it.
- baddox 10y ago
  I don't think that's quite what people usually mean when they talk about diminishing marginal utility. Granted, "marginal" was missing from the parent comment, but I gather that was the phenomenon being discussed. Diminishing marginal utility implies that you gain more utility by acquiring your first penny than you do acquiring your hundredth. Now, at such small levels of money, you could certainly argue that almost nothing is for sale at 1 penny, but once you get above the level where the disutility of carrying around a coin is dwarfed by the utility of the money itself, diminishing marginal utility applies pretty well.
- greenshackle2 10y ago
  Things may get weird at the scale of pennies or billions of dollars, but at scales relevant for buying insurance or gambling diminishing marginal utility certainly holds. Losing $10k when you have $20k hurts less than losing $10k when you have $10k.
ucaetano 10y ago
No, I'm suggesting that it isn't linear, and different people have different functions, even at the same level of wealth. There are even some techniques to discover and plot your own utility curve, which is quite useful when you're handling things like investing and insurance. For example: * Would you give $1 for a 10% chance of receiving $10? * Would you give $1 for a 9% chance of receiving $10? * Would you give $10,000 for a 1% chance of receiving $1M? * Would you give $10,000 for a 0.9% chance of receiving $1M? * Would you receive $10 for a 1% chance of losing $1000? * Would you receive $10,000 for a 1% chance of losing $1M? * Would you rather do nothing or have a 50%/50% chance of winning $1000 and losing $1000? * Would you rather do nothing or have a 50%/50% chance of winning $1M and losing $1M?
- ouid 10y ago
  no to all, because any risk is bad, because marginal utility is decreasing.
  - ucaetano 10y ago
    It's the other way around, "any risk is bad" and "marginal utility is decreasing" are conclusions that you reach from your own function, not that drive your function. * Would you give $1 for a 1% chance of winning $100? * Would you give $1 for a 1.1% chance of winning $100? * Would you give $1 for a 1.2% chance of winning $100? . . . * Would you give $1 for a 10% chance of winning $100?

Wealth has diminishing marginal utility. You're suggesting that it is increasing.

by ouid 10y ago

Wealth has diminishing marginal utility. You're suggesting that it is increasing.

I don't think that's true in the general case. For example, one penny has virtually no utility to me on its own, but there's plenty I can do with one pound, getting more than a hundred times the value from it.

baddox 10y ago
I don't think that's quite what people usually mean when they talk about diminishing marginal utility. Granted, "marginal" was missing from the parent comment, but I gather that was the phenomenon being discussed. Diminishing marginal utility implies that you gain more utility by acquiring your first penny than you do acquiring your hundredth. Now, at such small levels of money, you could certainly argue that almost nothing is for sale at 1 penny, but once you get above the level where the disutility of carrying around a coin is dwarfed by the utility of the money itself, diminishing marginal utility applies pretty well.
greenshackle2 10y ago
Things may get weird at the scale of pennies or billions of dollars, but at scales relevant for buying insurance or gambling diminishing marginal utility certainly holds. Losing $10k when you have $20k hurts less than losing $10k when you have $10k.

ucaetano 10y ago

No, I'm suggesting that it isn't linear, and different people have different functions, even at the same level of wealth. There are even some techniques to discover and plot your own utility curve, which is quite useful when you're handling things like investing and insurance. For example: * Would you give $1 for a 10% chance of receiving $10? * Would you give $1 for a 9% chance of receiving $10? * Would you give $10,000 for a 1% chance of receiving $1M? * Would you give $10,000 for a 0.9% chance of receiving $1M? * Would you receive $10 for a 1% chance of losing $1000? * Would you receive $10,000 for a 1% chance of losing $1M? * Would you rather do nothing or have a 50%/50% chance of winning $1000 and losing $1000? * Would you rather do nothing or have a 50%/50% chance of winning $1M and losing $1M?

ouid 10y ago
no to all, because any risk is bad, because marginal utility is decreasing.
- ucaetano 10y ago
  It's the other way around, "any risk is bad" and "marginal utility is decreasing" are conclusions that you reach from your own function, not that drive your function. * Would you give $1 for a 1% chance of winning $100? * Would you give $1 for a 1.1% chance of winning $100? * Would you give $1 for a 1.2% chance of winning $100? . . . * Would you give $1 for a 10% chance of winning $100?