Wealth

This is a transcript of the bonus material at the end of the giant How to Get Rich episode. A common question we get: “How do I find the time to start investing in myself? I have a job.” In one of the tweets from the cutting room floor, you wrote: “You will need to rent your time to get started. More

What’s a mispriced externality? You mentioned it on a previous episode. An externality is where there’s an additional cost imposed by whatever product is being produced or consumed, that’s not accounted for in the price of the product. This can happen for many reasons. Sometimes you can fix it by putting the cost back into the price. More

Let’s talk about net present value (NPV). Net present value is when you say, “That stream of payments I’m going to get in the future—what’s it worth today?” Here’s a common example: You’re joining a startup and getting stock options, and the founder says, “This company is going to be worth $1 billion, and I’m giving you 0.1% of the company; therefore, you’re getting $1 million worth of stock.” More

Consumer surplus and producer surplus are important concepts. Consumer surplus is the excess value you get from something when you pay less than you were willing to pay. I get a lot of joy out of my morning Starbucks coffee. Obviously I’ve made some money. So if my coffee cost $20, I would pay it. More

Are there any other microeconomic concepts, outside of zero marginal cost of replication and scale economies, that are important to understand? Price discrimination is important. It means you can charge people based on their propensity to pay. Now, you can’t charge people different amounts just because you don’t like them. More

Earlier, we talked about compound interest, but we didn’t dig into it much. Relationships offer a good example of compound interest. Once you’ve been in a good relationship with somebody for a while—whether it’s business or romantic—life gets a lot easier because you know that person’s got your back. More

Do you want to talk about Pareto optimal? Pareto optimal is another concept from game theory, along with Pareto superior. Pareto superior means something is better in some ways while being equal or better in other ways. It’s not worse in any way. This is an important concept when you’re negotiating. More

Let’s talk about Schelling points. The Schelling point is a game theory concept made famous by Thomas Schelling in his book, The Strategy of Conflict, which I recommend. It’s about multiplayer games where people respond based on what they think the other person’s response will be. More

Let’s chat about the Kelly criterion.  The Kelly criterion is a popularized mathematical formulation of a simple concept. The simple concept is: Don’t risk everything. Stay out of jail. Don’t bet everything on one big gamble. Be careful how much you bet each time, so you don’t lose the whole kitty.  If you’re a gambler, the Kelly criterion mathematically formulates how much you should wager per hand, even if you have an edge—because even when you have an edge, you can still lose. More