The nature of capital and income

Bibliographic data

Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

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Document type:: Monograph

Structure type:: Chapter

Title:: Part III. Capital and income

Collection:: Economics Books

276 NATURE. OF CAPITAL AND INCOME [Crar. XVI contrary, willing to make sacrifices in order to rid himself of them. Where the gambler would be willing to pay more than $5 for his lottery tickets, the cautious investor would only be induced to buy such tickets for considerably less than $5. To him, the chance of gain is outweighed by the prospect of loss. Rather than risk little in order to obtain large gains, he prefers to sacrifice much in order to avoid large losses. It is this sentiment which gives rise to the phenomenon of insurance. §6 There are three values which apply to an uncertain return: (1) the value which that return would have if the uncertainty could be eliminated, or its riskless value; (2) the value which would be attached to it if the investor were willing to pay the product of the income by the chance of obtaining it, or the mathematical value; (3) the value which he is actually willing to pay, or the commercial value. Thus in the case of the lottery ticket, entitling the holder to the chance of $100, the riskless value 1s $100; the mathematical value is $5; and the commer- cial value, more than $5 for the reckless, less for the man of ordinary caution, and just $5 for those of an intermediate temperament. The ratio of the mathematical to the riskless value may be called the “ coefficient of probability.” In the supposed case of the lottery ticket this coefficient is y§5. The ratio of the commercial to the mathematical value —a ratio which will vary according to the temperament of the in- dividual — may be called the coefficient of caution.” In the case of a man who values his chance at $4, this coeffi- cient would be 4. Given these ratios, we can for a given individual derive the commercial value from the riskless value by multiplying the riskless value by the coefficient of probability and the result by the coefficient of caution, thus: $100 x 155 x + =34. The product of these two ratios

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