4 ms·

Since my savings are well in excess of 100 Euro, and I don't expect them to dip below 100 Euro in the next twelve months, I don't need 100 Euro right now. There

by rlpb 7y ago

Since my savings are well in excess of 100 Euro, and I don't expect them to dip below 100 Euro in the next twelve months, I don't need 100 Euro right now. Therefore my calculation is simple and unemotional: is the interest I'll get from saving what I could receive now higher or lower than the additional amount you're offering me in twelve months if I wait? For those who aren't lucky enough to not need 100 Euro right now, the calculation is entirely different. Do you want to be hungry, or not? This makes the question so skewed I don't think it's any valid measure of "patience" at all. I don't need to be patient to wait.

noonespecial 7y ago
The entire "payday loan" industry depends on this calculation. If you're desperate enough you'll pay almost any future cost for that 100 today.
ovi256 7y ago
>is the interest I'll get from saving That's good, but you also must consider counterparty risk. Will these people offering me x euros in 12 months still realistically be around then ? If the counterparty risk is very low, their offer must be considered at face value. If the risk is higher, the present value of the future x euros must be discounted.
- hellisothers 7y ago
  The other point (I assume) the OP is making is that they don’t need the money, at all, so if they can get it then go ahead and take the risk. A poorer person _needs_ that money, so it’s less a patience thing and more a calculated risk tolerance thing. But the wealthy do like having it reinforced that they earned their wealth because they’re better...
Bartweiss 7y ago
Thank you - this is a bizarrely bad question. Not only is "earn interest" a very different use than "eat dinner", but someone short on money is also more likely to have access to short-term, high-yield "investments" like avoiding fees. Investing 100 Euro for a year might earn 5%, but if 100 Euro today lets me avoid taking a payday loan, I could 'earn' 30%+ in interest not incurred, and should take the money now in more cases. If I'm 100 Euro behind on my gas bill and know the fee for late payment is 80 Euro, I should obviously pass up 150 Euro in a year. If my car I use to get to work is broken, I need 80 Euro to repair it, and I'll make 150 Euro tomorrow by not missing work, then taking the money now is higher payoff (250 Euro total) than any return offered (max 200). It's a constant frustration I have with econ experiments, even when they're less blatantly silly than this. The Allais paradox (https://en.wikipedia.org/wiki/Allais_paradox https://en.wikipedia.org/wiki/Allais_paradox) is interesting, but it ultimately shows that people's preferences change when you add an equal amount of expected value to every choice in a wager. When you look at the actual uses of money (e.g. the sub-linear correlation with happiness), it stops being surprising or irrational that people's appetite for risk varies with the dollar value being wagered.

by rlpb 7y ago

noonespecial 7y ago

The entire "payday loan" industry depends on this calculation. If you're desperate enough you'll pay almost any future cost for that 100 today.

ovi256 7y ago

>is the interest I'll get from saving That's good, but you also must consider counterparty risk. Will these people offering me x euros in 12 months still realistically be around then ? If the counterparty risk is very low, their offer must be considered at face value. If the risk is higher, the present value of the future x euros must be discounted.

hellisothers 7y ago
The other point (I assume) the OP is making is that they don’t need the money, at all, so if they can get it then go ahead and take the risk. A poorer person _needs_ that money, so it’s less a patience thing and more a calculated risk tolerance thing. But the wealthy do like having it reinforced that they earned their wealth because they’re better...

Bartweiss 7y ago

Thank you - this is a bizarrely bad question. Not only is "earn interest" a very different use than "eat dinner", but someone short on money is also more likely to have access to short-term, high-yield "investments" like avoiding fees. Investing 100 Euro for a year might earn 5%, but if 100 Euro today lets me avoid taking a payday loan, I could 'earn' 30%+ in interest not incurred, and should take the money now in more cases. If I'm 100 Euro behind on my gas bill and know the fee for late payment is 80 Euro, I should obviously pass up 150 Euro in a year. If my car I use to get to work is broken, I need 80 Euro to repair it, and I'll make 150 Euro tomorrow by not missing work, then taking the money now is higher payoff (250 Euro total) than any return offered (max 200). It's a constant frustration I have with econ experiments, even when they're less blatantly silly than this. The Allais paradox (https://en.wikipedia.org/wiki/Allais_paradox https://en.wikipedia.org/wiki/Allais_paradox) is interesting, but it ultimately shows that people's preferences change when you add an equal amount of expected value to every choice in a wager. When you look at the actual uses of money (e.g. the sub-linear correlation with happiness), it stops being surprising or irrational that people's appetite for risk varies with the dollar value being wagered.