Young people are wealthier in “time remaining until I cannot work anymore”. What’s more, betting 100% of your liquid assets is a much smaller risk for a poor student. Further, while old people have more wealth they also have more commitments, such as children; a young person risks only his own livelihood.
Young people are wealthier in “time remaining until I cannot work anymore”.
A year wasted is a year wasted whether it’s your 21st or your 61st.
betting 100% of your liquid assets is a much smaller risk for a poor student.
Yep, but if you’re starting a business, you won’t be betting 100% of your liquid assets, you’ll be betting some fairly constant chunk of capital (living expenses for yourself + startup expenses for the business), which is likely going to be a much larger % of the liquid assets of a poor student.
Further, while old people have more wealth they also have more commitments, such as children; a young person risks only his own livelihood.
I agree that children or a mortgage should make one more risk-averse.
BTW, the reason I’m asking these questions is I’m wondering if people just get irrationally risk-averse as they age, and rationally more people should be acting like young people and taking financial risks all throughout their lives.
Then would you also agree that a dollar wasted is a dollar wasted whether you have ten, or ten million?
No, I think money is different from time this way. For example, it’s possible to have more money than you know what to do with, but having more time than you know what to do with is a rarer problem. My marginal utility for money is really high for my first few thousand dollars and then drops off. My marginal utility for time is shaped much differently… I would value 20 extra years of youthful happy life about twice as much as 10 extra years of youthful happy life. People are (rationally) risk-averse when they have small amounts of capital because their utility function for money is such that they would really like to have at least a small amount. I don’t see any corresponding effect for time (indeed, people say things like “it’s better to burn out than fade away”).
Bankruptcy is the loss of 100% of your assets.
Personal bankruptcy, yes. So young people starting businesses would run a higher risk of personal bankruptcy and the drop in credit rating that implies.
Young people are wealthier in “time remaining until I cannot work anymore”. What’s more, betting 100% of your liquid assets is a much smaller risk for a poor student. Further, while old people have more wealth they also have more commitments, such as children; a young person risks only his own livelihood.
A year wasted is a year wasted whether it’s your 21st or your 61st.
Yep, but if you’re starting a business, you won’t be betting 100% of your liquid assets, you’ll be betting some fairly constant chunk of capital (living expenses for yourself + startup expenses for the business), which is likely going to be a much larger % of the liquid assets of a poor student.
I agree that children or a mortgage should make one more risk-averse.
BTW, the reason I’m asking these questions is I’m wondering if people just get irrationally risk-averse as they age, and rationally more people should be acting like young people and taking financial risks all throughout their lives.
Then would you also agree that a dollar wasted is a dollar wasted whether you have ten, or ten million?
Bankruptcy is the loss of 100% of your assets.
No, I think money is different from time this way. For example, it’s possible to have more money than you know what to do with, but having more time than you know what to do with is a rarer problem. My marginal utility for money is really high for my first few thousand dollars and then drops off. My marginal utility for time is shaped much differently… I would value 20 extra years of youthful happy life about twice as much as 10 extra years of youthful happy life. People are (rationally) risk-averse when they have small amounts of capital because their utility function for money is such that they would really like to have at least a small amount. I don’t see any corresponding effect for time (indeed, people say things like “it’s better to burn out than fade away”).
Personal bankruptcy, yes. So young people starting businesses would run a higher risk of personal bankruptcy and the drop in credit rating that implies.