Marginal Utility of Money

the same amount of money has different 'utility' for different people. losing $10K, a poor guy loses more that a VC losing $1M. it's not that a guy won't be able to buy the next porsche.

In terms of currency value they are. However if you assume that the relationship between money and utility follows a sigmoid curve: in terms of utility it cost them far more than it did you.

He's referring to the marginal utility of money [1], where $1 means more to a person with $100 in the bank than it does to the person with $100M in the bank.[1] http://en.wikipedia.org/wiki/Marginal_utility

The utility of a dollar is not constant.

You're not accounting for the marginal utility of money. The marginal utility of money decays exponentially with respect to income.

Utility isn’t linear in dollars. I’d be just about as happy with 100 million as 500 million.

It seems to me that if you already have, say, 100000$, then that utility changes completely. Losing 1$ would be meaningless for you, whereas gaining 1 million dollars would be a huge improvement.

One common assumption is that utility is logarithmic in money, i.e. that you become "one unit happier" not by adding $100K but by doubling your income. This matches actual human behavior fairly well, and implies that you should buy insurance (losing everything is really bad) but not lottery tickets (winning $BIGNUM makes you less happy than you'd think).

Also consider non linear utility of money.

While rationally you might think so, in practice you tend to act differently than that. Here's the best example:Let's say that you a running a risk of, for whatever reason, having to pay $1M in any given year with a 1 in 1M probability.Your expected outcome is -$1 per year, which isn't much. So if someone came and offered for you to pay $1 for year for that risk to go away, you'd be indifferent.But utility isn't linear. Losing $1 wouldn't make a difference