money sense

When you design a money-mediated mechanism, you implicitly assume that the value of a dollar is the same for everyone, but this assumption is incorrect.

For example, suppose there is a device that has a 50% chance of becoming $0 and a 50% chance of becoming $4N when N dollars are inserted. Suppose this device can be used only once. How much would you put in?

If you want to maximize your expectations, put all your money in. If you can borrow money, you can borrow to the limit. Rationally speaking, of course, right? But most people don't behave that way.

Even if they are within their actual disposable income, their fear of risk is so strong that they are unable to seize opportunities.

For example, suppose I give you the device I mentioned earlier and 1 million yen, and say, "You can put all of it in or leave some behind. The rational thing to do, of course, would be to put in 1 million yen, but there are likely to be many people who would say, "I'll leave half of it.

This is a case of money sense, not a case of risk tolerance.

I think this is "buy because you want it" or "buy because it fits within your disposable income" on the part of the kids.

The parent's side says to it, "If you compound it, it will quadruple in 20 years."

This compares "-$10,000 + emotional value X of getting a uniform" to "+$30,000 after 20 years"

The parents bemoan the fact that their kids don't understand their future interests, but in reality, the parents are underestimating X.

---