Money Paradoxes

Published December 20, 2024 | By admin

Term	Meaning
Ruskin’s Paradox	The idea that economic growth can harm societal well-being if it compromises higher values.
The Pareto Principle	80% of effects come from 20% of causes, applied to wealth and productivity.
The Peter Principle	People rise to their level of incompetence in hierarchical structures.
The Tragedy of the Commons	Shared resources are overused when individuals act in self-interest.
The Prisoner’s Dilemma	A game theory concept showing why two rational agents might not cooperate.
The Marshmallow Test	A test of delayed gratification predicting future success.
The Broken Window Fallacy	A fallacy suggesting breaking windows stimulates economic activity.
The Laffer Curve	A curve representing tax revenue and tax rate relationships.
Gresham’s Law	Bad money drives out good money in circulation.
The Invisible Hand	Market self-regulation via individual self-interest.
The Law of Diminishing Returns	Each additional unit of input yields less output over time.
Time Value of Money	The principle that money today is worth more than the same amount later.
Compound Interest	Earnings on earnings over time, growing wealth exponentially.
Opportunity Cost	The cost of foregoing the next best alternative.
Sunk Cost Fallacy	A bias to continue investing due to prior costs.
Loss Aversion	Humans fear losses more than they value equivalent gains.
Behavioral Economics	Examines psychological factors influencing financial decisions.
The Butterfly Effect	Small changes can lead to significant consequences in systems.
The Cobra Effect	Unintended consequences of incentives causing harmful behavior.
Moral Hazard	Risk-taking increases when protection from consequences exists.
The Matthew Effect	Wealth accumulates for those who already have more.
The Lindy Effect	The longer something lasts, the longer it’s likely to exist.
The Ostrich Effect	Avoidance of negative financial news or decisions.
The Endowment Effect	People overvalue things they own, leading to irrational decisions.
The Halo Effect	Positive impressions of one trait influence unrelated judgments.
The Peltzman Effect	Regulations lead to riskier behavior due to overconfidence in safety.
The Abilene Paradox	Groups agree on a course of action against individual preferences.
The Boiling Frog Syndrome	Ignoring gradual financial changes until they become critical.
The Zeigarnik Effect	Unfinished tasks are remembered better than completed ones.
Parkinson’s Law	Work expands to fill the time available for completion.
The Law of Supply and Demand	Price and quantity demanded are inversely related.
The Principal-Agent Problem	Misaligned incentives between owners and managers.
Risk-Reward Tradeoff	Higher returns require accepting higher risks.
The Barbell Strategy	Balancing safety and high-risk investments for resilience.
The Efficient Market Hypothesis	Prices reflect all available information under efficient markets.
Survivorship Bias	Success stories survive, ignoring failures, skewing perceptions.
Confirmation Bias	Preference for information confirming existing beliefs.
Anchoring Effect	Relying heavily on the first piece of information encountered.
Reciprocity Norm	A social norm where favors create obligations to return them.
The Scarcity Principle	Limited availability increases perceived value.
The Rule of 72	Estimates time to double investments via compounding.
Diversification	Spreading investments reduces risk.
Liquidity Preference Theory	Preference for liquid assets during uncertainty.
The Velocity of Money	Rate at which money circulates in the economy.
Fiscal Multiplier	Government spending magnifies economic output.
Inflation Hedge	Investments that protect against inflation’s impact.
Stagflation	High inflation with stagnant economic growth.
Creative Destruction	New innovations replace outdated industries and systems.
Capital Accumulation	Building wealth through saving and investing.
The Law of Comparative Advantage	Countries benefit from specializing and trading efficiently.
The Wealth Effect	People feel richer when asset values rise.
The Utility Maximization Principle	Consumers aim to maximize satisfaction from resources.
The Paradox of Thrift	Saving too much reduces economic demand and growth.
The Snowball Effect	Small consistent actions accumulate into significant changes.
The Multiplier Effect	Initial spending multiplies through the economy.
Hyperbolic Discounting	Preferring smaller immediate rewards over larger future ones.
The Law of Large Numbers	Probability improves with larger sample sizes.
The Power Law	Wealth distribution follows a predictable exponential curve.
Marginal Utility	Additional consumption brings less satisfaction.
The Overconfidence Effect	Overestimating one’s financial knowledge or skill.
Regret Aversion	Avoiding decisions to prevent future regret.
The Decoy Effect	Preference influenced by less attractive options nearby.
Mental Accounting	Treating money differently based on its source or purpose.
Anchoring Bias	Anchoring expectations based on an initial reference point.
Framing Effect	How context or wording changes perceptions of choices.
The End of History Illusion	Falsely assuming no future personal change.
The Wisdom of Crowds	Aggregated opinions often outperform experts.
Cost-Benefit Analysis	Weighing costs versus benefits for decisions.
Financial Leverage	Using debt to increase potential financial gains.
The Winner’s Curse	Overpaying due to limited information or competition.
The Diderot Effect	Buying related items leads to unnecessary spending.
The Hedonic Treadmill	Adapting to wealth without increased happiness.
The Law of Unintended Consequences	Unexpected outcomes result from well-intentioned policies.
Price Elasticity of Demand	How demand changes relative to price changes.
The Golden Handcuffs	Golden handcuffs trap individuals in high-paying jobs.
The Law of One Price	Identical goods cost the same in efficient markets.
The Equity Premium Puzzle	Risk-free returns are inexplicably low compared to equity.
The Buyer’s Remorse	Doubt or regret after making a financial decision.
The Ultimatum Game	An ultimatum where fairness affects financial acceptance.
The Fairness Principle	Morals influence decisions over strict economics.
Caveat Emptor	Buyers must beware in financial transactions.
The Gambler’s Fallacy	Mistaken belief in patterns in random events.
The Skin in the Game Principle	Taking responsibility reduces moral hazard risks.

Money Paradoxes

Leave a Reply Cancel reply