3 ms·

Utility isn’t linear in dollars. I’d be just about as happy with 100 million as 500 million.

Vecr 3y ago
Even if you think it's linear, there's no reason why you need to be a dollar maximizer, or even an average dollar maximizer. You could instead maximze the 85th percentile dollar value or something like that to be more safe.
rufus_foreman 3y ago
How do you know? When I first started investing and only had a little money, I remember thinking that if I had twice as much, my money worries would be over. Many years later, I have 50 times as much money as then, and part of me still thinks that if I had twice as much as I have now, my money worries would be over. And the other part knows that I am just the type of person who constantly worries about money.
- throw0101b 3y ago
  >> Utility isn’t linear in dollars. > How do you know? Empirical evidence: > Technically, the researchers found that life satisfaction rises with the log of income[1] (i.e. multiples of income), not linear changes in income. The reason why log income is more relevant here is because someone with $10,000 might be much happier than someone with $0. However, someone with $10,010,000 is probably no happier than someone with $10,000,000. In other words, $10,000 means a lot to someone with nothing, but nothing to someone with a lot. I’ve written on how this idea applies to wealth[2] in the past and I plan on expanding on it in the future. […] > In 2021, a study by Matthew Killingsworth[3] titled “Experienced well-being rises with income, even above $75,000 per year” shook the foundations of happiness research by contradicting the findings from Kahneman and Deaton’s famed 2010 paper. In particular, Killingsworth’s study found that both life satisfaction and emotional well-being continued to increase with income (i.e. the log of income), even beyond the $75,000 threshold reported by Kahneman and Deaton. * https://ofdollarsanddata.com/money-cant-buy-happiness/ https://ofdollarsanddata.com/money-cant-buy-happiness/
  - rufus_foreman 3y ago
    My "how do you know" was more directed at "I’d be just about as happy with 100 million as 500 million". I agree with the log part. Wouldn't we expect them to be happier with their wealth doubled more than twice?
RhysU 3y ago
Your heirs/descendants wouldn't be.
- NotYourLawyer 3y ago
  My kids would be. My theoretical grandkids probably would be too. Anything farther out than that is too attenuated for me to care much about. Anyway, most family wealth doesn’t turn into a dynasty. Usually the first generation that didn’t have to work for it ends up pissing it all away.
  - RhysU 3y ago
    Thanks for noticing the implications. Your great-grandkids would find utility, as would their children's children. It's their perspective that matters for utility, not yours. The fun thing is people talk log utility but forget there's an exponential process (children) that can follow until the lineage dies out. Agreed it gets pissed away. Which means the children process doesn't have to be particularly exponential to make log utility become linear looking for all practical values when one includes descendants.
    - NotYourLawyer 3y ago
      > It's their perspective that matters for utility, not yours Not sure I agree. What I said at the beginning was that *I’d* be just as happy with 100 million vs 500 million. Their utility only matters in that calculation to the extent it affects my utility.

Vecr 3y ago

Even if you think it's linear, there's no reason why you need to be a dollar maximizer, or even an average dollar maximizer. You could instead maximze the 85th percentile dollar value or something like that to be more safe.

rufus_foreman 3y ago

How do you know? When I first started investing and only had a little money, I remember thinking that if I had twice as much, my money worries would be over. Many years later, I have 50 times as much money as then, and part of me still thinks that if I had twice as much as I have now, my money worries would be over. And the other part knows that I am just the type of person who constantly worries about money.

throw0101b 3y ago
>> Utility isn’t linear in dollars. > How do you know? Empirical evidence: > Technically, the researchers found that life satisfaction rises with the log of income[1] (i.e. multiples of income), not linear changes in income. The reason why log income is more relevant here is because someone with $10,000 might be much happier than someone with $0. However, someone with $10,010,000 is probably no happier than someone with $10,000,000. In other words, $10,000 means a lot to someone with nothing, but nothing to someone with a lot. I’ve written on how this idea applies to wealth[2] in the past and I plan on expanding on it in the future. […] > In 2021, a study by Matthew Killingsworth[3] titled “Experienced well-being rises with income, even above $75,000 per year” shook the foundations of happiness research by contradicting the findings from Kahneman and Deaton’s famed 2010 paper. In particular, Killingsworth’s study found that both life satisfaction and emotional well-being continued to increase with income (i.e. the log of income), even beyond the $75,000 threshold reported by Kahneman and Deaton. * https://ofdollarsanddata.com/money-cant-buy-happiness/ https://ofdollarsanddata.com/money-cant-buy-happiness/
- rufus_foreman 3y ago
  My "how do you know" was more directed at "I’d be just about as happy with 100 million as 500 million". I agree with the log part. Wouldn't we expect them to be happier with their wealth doubled more than twice?

RhysU 3y ago

Your heirs/descendants wouldn't be.

NotYourLawyer 3y ago
My kids would be. My theoretical grandkids probably would be too. Anything farther out than that is too attenuated for me to care much about. Anyway, most family wealth doesn’t turn into a dynasty. Usually the first generation that didn’t have to work for it ends up pissing it all away.
- RhysU 3y ago
  Thanks for noticing the implications. Your great-grandkids would find utility, as would their children's children. It's their perspective that matters for utility, not yours. The fun thing is people talk log utility but forget there's an exponential process (children) that can follow until the lineage dies out. Agreed it gets pissed away. Which means the children process doesn't have to be particularly exponential to make log utility become linear looking for all practical values when one includes descendants.
  - NotYourLawyer 3y ago
    > It's their perspective that matters for utility, not yours Not sure I agree. What I said at the beginning was that *I’d* be just as happy with 100 million vs 500 million. Their utility only matters in that calculation to the extent it affects my utility.