I have some thoughts on money I would like to share.
The Utility Value of Money:
We have long heard rich people say it. People like Gerry Harvey who state that after you reach a certain point, the extra money really doesn't make much of a difference to your life. Hence someone with 20 million is not going to be twice as happy as someone with 10 million. Though someone who experiences a change of their net worth from 100k to 200k will likely be ecstatic with the change.
The utility curve of money will be different for each individual. You can plot your own utility graph by asking yourself questions about your personal situation.
A few choices:
a) Would you take $1000 guaranteed or a 5% chance of winning 1 million?
b) Would you take $200,000 guaranteed or a 25% chance of winning 1 million?
c) Would you take a 95% chance of 1 million or a 25% chance of 5 million?
Now If you are like me your answers would be a)5% b)200k c)95%; as the top of my utility curve (the point where the gradient gets much flatter) is around the 1 million in assets net worth mark.
From a statistical point of view the optimal answers were: a)5% b)25% c)25%
Now if you offered Gerry Harvey choice (c) does anyone here think he wouldn't take the 25% chance? His utility curve would be much different to mine
A common view of the money/happiness relationship.
The more you get, the happier you are.
A more likely reality of the money/happiness relationship.
Money makes a big difference until you hit the top of your utility curve.
I have sourced these ideas from "Mastering Risk" by Mike Lally. Not everyones cup of tea but I find it fascinating.
WaySolid.
The Utility Value of Money:
We have long heard rich people say it. People like Gerry Harvey who state that after you reach a certain point, the extra money really doesn't make much of a difference to your life. Hence someone with 20 million is not going to be twice as happy as someone with 10 million. Though someone who experiences a change of their net worth from 100k to 200k will likely be ecstatic with the change.
The utility curve of money will be different for each individual. You can plot your own utility graph by asking yourself questions about your personal situation.
A few choices:
a) Would you take $1000 guaranteed or a 5% chance of winning 1 million?
b) Would you take $200,000 guaranteed or a 25% chance of winning 1 million?
c) Would you take a 95% chance of 1 million or a 25% chance of 5 million?
Now If you are like me your answers would be a)5% b)200k c)95%; as the top of my utility curve (the point where the gradient gets much flatter) is around the 1 million in assets net worth mark.
From a statistical point of view the optimal answers were: a)5% b)25% c)25%
Now if you offered Gerry Harvey choice (c) does anyone here think he wouldn't take the 25% chance? His utility curve would be much different to mine
A common view of the money/happiness relationship.
The more you get, the happier you are.
A more likely reality of the money/happiness relationship.
Money makes a big difference until you hit the top of your utility curve.
I have sourced these ideas from "Mastering Risk" by Mike Lally. Not everyones cup of tea but I find it fascinating.
WaySolid.