Re:How to Think for Yourself
by Viliam1234 on Saturday November 28, 2020 @03:05PM
(#25240080)
Money has logarithmic utility. If you build a successful company, your gain is proportional to logarithm of its profit. But your investor's gain is directly proportional to the profit.
So the investor will try to convince you to aim for 300% profit with 50% probability (compared to your original plan), because for the investor this simply means +50%. For you, it mostly means -50% probability, because the difference between having e.g. $10M or $30M is negligible compared to the difference between having $10M or nothing.
So the investor will try to convince you to aim for 300% profit with 50% probability (compared to your original plan), because for the investor this simply means +50%. For you, it mostly means -50% probability, because the difference between having e.g. $10M or $30M is negligible compared to the difference between having $10M or nothing.