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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 dis
by 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 agono to all, because any risk is bad, because marginal utility is decreasing.
- ucaetano 10y agoIt'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?