Chapter 27

Chapter 27 went more in depth into things discussed about in chapter 26. It also introduced new concepts and ideas, such as how to measure value of money and being able to compare it to years in the future whether it's a good idea to take an immediate payment or through compounded interest over several years. Risk aversion was also introduced, with many factors taken into account when dealing with risky trade-offs. Having more wealth causes the risk to not be worth, as marginal utility of a risky bet would be much lower the more money a person has. This causes people to not be as risky as possible to be able to maximize the amount of satisfaction they get from their money without having to worry about losing it in a bet or something equally risky. With stocks, firm specific risk can be lowered by not putting all of a person's investment in one company so as to have multiple stocks in different firms lower risk as much as possible. After a certain point though, the risk involved reaches a plateau that can't go any lower, because while firm specific risk can be lowered, total risk can't after a while. And while many people want to lower the amount of risk they have, risky behavior can also have positive gains that can compensate for the gamble the person took.