Comments on: The Simple Dollar Morning Roundup: Home Decoration Edition

By: 60 in 3

60 in 3 — Mon, 11 Jun 2007 18:20:27 +0000

Heh Trent, I live in the SF bay area. Want to compare house prices? I think you’ll have a heart attack when you hear what my dinky little two bedroom townhouse cost me.

By: kim

kim — Mon, 11 Jun 2007 15:31:23 +0000

This is my favorite decorating tip. Instead of buying art to fill up wall space and add color. Invest in a big box of crayons and some good quality paper. Go through the crayon box and choose the colors that go with you room’s decor as well as any accent shades you would like to have in the room. Give your children just those crayons and the good paper and have them draw for you. It doesn’t matter if it’s just the scribbles of a toddler or a themed drawing of an older child. The result will be a picture that, when inexpensively framed, will look beautiful in your room. Remember, pictures can be easily cropprd to any size. Be sure to include the child’s name and age in a visible place. Like any quality art, these will become even more precious with time!

By: Kristin

Kristin — Mon, 11 Jun 2007 14:59:51 +0000

If you guys come up with any frugal home decorating tips, I’d love to hear about them! I’m always looking for new ideas, but sometimes its hard to justify spending money on decorating.

By: Amy

Amy — Mon, 11 Jun 2007 14:36:35 +0000

Strictly speaking, $500,000 guaranteed is worth exactly as much as a 50% shot at $1 million. They both have an expected value of $500,000. (Expected value is defined as the sum of the value of all possible outcomes multiplied by their probability of happening.) In fact, once you consider that the second choice wasn’t $1 million or nothing, but $1 million or $25,000, and if the probability of each outcome was indeed exactly 50%, then option 2 has an expected value of $512,500, versus $500,000 for option one, making it the correct choice to maximize one’s expected return.

Intuitively, this is going to make no sense to most of us, but there’s a simple reason for that. For the typical American family, that first $500,000 is going to be “worth” a lot more than an additional $500,000 would be. Think of the difference between your life now and your life with an additional $500,000, and compare that gap to the gap between your life with an additional $500,000 and an additional $1 million. For me at least the difference between now and $500,000 is never worrying about money again, the additional $500,000 buys me a bigger house and more travel…just not as significant a jump.

However, if you make the amounts much smaller, say $5 versus a 50% shot at $10, it makes sense that the choice between coffee and a muffin for sure, or a 50% shot at a movie ticket would be pretty much a toss-up.

So the choice isn’t really, as the link conceptualizes, between overconfidence and rational thought. Rather, it’s a reflection of how much more the additional money means to you, and that’s going to be a combined function of how much you already have, and what your financial goals are.