Pretty much this; if we adjust the numbers to “A: 20 cents or B: 25% chance for 100 cents” then I’d take the option B, but scale it up to “A: $200,000 or B: 25% chance for $1,000,000″, and I’d take option A. Because $0 is 0 points, $1 million is something like 4 points, and $200,000 is about 2 points.
Human perception of scale for money is not linear (but not logarithmic either… not log 10, anyway, maybe log somethingelse). And since I’m running this flawed hardware...
Some of it was pointed out already as “prospect theory” but that seems to be more about perception of probability rather than the perception of the actual reward.
Log to base 10 and log to base anything_else differ only by a scale factor, so if you find log-to-base-10 unsatisfactory you won’t like any other sort of log much better.
It sounds like you’re suggesting that utility falls off slower than log(wealth) or log(income). I think there’s quite good evidence that it doesn’t—but if you’re looking at smallish changes in wealth or income then of course you can get that smaller falloff in change in utility. E.g., if you start off with $66,666 and gain $200k then your wealth has gone up by a factor of 4; if you gain $1M instead then your wealth has gone up by a factor of 16. If your logs are to base 2, you get exactly the numbers you described.
The right figure to use for “wealth” there may well not be exactly your total net wealth; it should probably include some figure for “effective wealth” arising from your social context—family and friends, government-funded safety net, etc. It seems like that should probably be at least a few tens of kilobucks in prosperous Western countries.
Pretty much this; if we adjust the numbers to “A: 20 cents or B: 25% chance for 100 cents” then I’d take the option B, but scale it up to “A: $200,000 or B: 25% chance for $1,000,000″, and I’d take option A. Because $0 is 0 points, $1 million is something like 4 points, and $200,000 is about 2 points.
Human perception of scale for money is not linear (but not logarithmic either… not log 10, anyway, maybe log somethingelse). And since I’m running this flawed hardware...
Some of it was pointed out already as “prospect theory” but that seems to be more about perception of probability rather than the perception of the actual reward.
Log to base 10 and log to base anything_else differ only by a scale factor, so if you find log-to-base-10 unsatisfactory you won’t like any other sort of log much better.
It sounds like you’re suggesting that utility falls off slower than log(wealth) or log(income). I think there’s quite good evidence that it doesn’t—but if you’re looking at smallish changes in wealth or income then of course you can get that smaller falloff in change in utility. E.g., if you start off with $66,666 and gain $200k then your wealth has gone up by a factor of 4; if you gain $1M instead then your wealth has gone up by a factor of 16. If your logs are to base 2, you get exactly the numbers you described.
The right figure to use for “wealth” there may well not be exactly your total net wealth; it should probably include some figure for “effective wealth” arising from your social context—family and friends, government-funded safety net, etc. It seems like that should probably be at least a few tens of kilobucks in prosperous Western countries.