Relative Spending for a Billionaire

3/21/2021

One topic I’ve mentioned before on this blog (see posts on micromorts here and here), is that people are generally not very good at thinking about very large numbers (e.g. million, billions, etc.). I was reminded of this again today while reading about a billionaire making a $250,000 investment in a startup. I’m sure the $250,000 was a huge deal for the start up, but how big of a deal was it for the billionaire?

Lets assume our billionaire has exactly $1B (in reality I’m sure they actually have more). $250,000 of $1B = 0.025% of their net worth. That doesn’t seem like a lot, but how little is that actually? (I should note people aren’t very good at reasoning about very small numbers like factions of a percent either!)

Let’s translate that 0.025% using an amount of money most adults could reason about: $1,000. If you had $1,000, 0.025% would be: $0.25 = 25 cents = a quarter = not much at all relative to your wealth. In other words, $250,000 is an amount so small if they lost all of it they’d likely be bummed out for maybe two seconds before forgetting about it completely!

For fun / education here are a couple other such comparisons:

• $1,000,000,000 ($1 billion / $1B) is to $1,000,000,000,000 ($1 trillion / $1T) as $1 is to $1,000
  • There are no trillionaires in the world (that I’m aware of), but the annual spending of US government is a few trillion a year
  • A such, the government can spend (waste?) $1B with the same ease as a person with $1,000 can spend (waste?) $1
• $1,000,000 ($1 million / $1M) is to $1,000,0000,000,000 ($1 trillion / $1T) as $0.001 (a tenth of a cent) is to $1,000
  • Continuing the above discussion about government spending, relative to $1T, $1M is almost meaningless to think about (a rounding error), just as thinking about fractions of a cent is probably pretty meaningless to you
  • Reasoning about government spending is so common, I’ll probably do a post on that topic alone in the future

Sources

1. Micromorts and Metric Design
2. A Better Mortality Risk Metric (Micromorts Continued)
3. https://www.cbo.gov/topics/budget

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