<blockquote>
<p>I have a generic question that perhaps has more to do with psychology than with anything else.</p>
</blockquote>
<p>This answer may be disappointing, but I'll give it the Econ way. In Econ, we tend to assume the all people are rational, utility maximizing agents. Despite this, people make different choices from one another all the time. This can be explained mathematically by individuals having their own personalized definition of utility, their utility function.</p>
<blockquote>
<p>Would, on the contrary, some people argue that investing into the stock market is a waste because they cannot use the money right away?</p>
</blockquote>
<p>Thinking in terms of utility functions, this question asks if it is possible for a utility function to exist such that someone, somewhere might view the potential benefits of investing in the stock market as outweighed by the potential detriments of not having immediate access to their money. And the answer is <strong>yes, this utility function can exist.</strong> So someone might make this argument.</p>
<p>However, the legitimacy of this hypothetical individual's rational, economic decision-making does not mean this is the correct move for other people. As your question alludes to, the stock market does confer expected benefit over stuffing your cash in a mattress. To some other hypothetical individual on the margin (aka the decision-making fence), this value-add over The Bank of Mattress might make temporary illiquidity worth it. It may even incentivize them to save instead of consume, as the extra utility of the stock market pushes them over the fence. And both people are viewed as rational, utility-maximizing.</p>
<p>@Surge's comment alludes to some more in-depth parameters of personalized utility functions that we can play around with: time discounting, loss aversion, present bias, and risk aversion to name a few.</p>

CC BY-SA 4.0
2024-01-10T22:10:12.750Z
2024-01-10T22:10:12.750Z
joeday
<p>I have a generic question that perhaps has more to do with psychology than with anything else.</p>
<p>The question is, how effective is the stock market's existence in being effective in making people save money (so, that, for instance, they may invest it into the stock market and try to put enough money aside to maintain a diversified portfolio)?</p>
<p>Would, on the contrary, some people argue that investing into the stock market is a waste because they cannot use the money right away?</p>
<p>Thanks.</p>

CC BY-SA 4.0
2024-01-05T17:46:44.710Z
You can start reading about time discounting in utility models first. There are many issues here that have additional behavioural relevance: loss aversion, present bias, risk aversion (or seeking -- as some people like to 'play' at investment as if it is a lottery), habit formation, etc.
Surge
<preferences><stock-market>
Stock market existence and saving money
Joselin Jocklingson
# Stock market existence and saving money

(Asked by: username_0 on 2024-01-02)

I have a generic question that perhaps has more to do with psychology than with anything else.

The question is, how effective is the stock market's existence in being effective in making people save money (so, that, for instance, they may invest it into the stock market and try to put enough money aside to maintain a diversified portfolio)?

Would, on the contrary, some people argue that investing into the stock market is a waste because they cannot use the money right away?

Thanks.

**Tags:** preferences, stock-market
> **Comments:**
> **username_1**: You can start reading about time discounting in utility models first. There are many issues here that have additional behavioural relevance: loss aversion, present bias, risk aversion (or seeking -- as some people like to 'play' at investment as if it is a lottery), habit formation, etc.  

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## 1 answers

### Answer by username_2 on 2024-01-10. Score: 1

> I have a generic question that perhaps has more to do with psychology than with anything else.

This answer may be disappointing, but I'll give it the Econ way. In Econ, we tend to assume the all people are rational, utility maximizing agents. Despite this, people make different choices from one another all the time. This can be explained mathematically by individuals having their own personalized definition of utility, their utility function.

> Would, on the contrary, some people argue that investing into the stock market is a waste because they cannot use the money right away?

Thinking in terms of utility functions, this question asks if it is possible for a utility function to exist such that someone, somewhere might view the potential benefits of investing in the stock market as outweighed by the potential detriments of not having immediate access to their money. And the answer is **yes, this utility function can exist.** So someone might make this argument.

However, the legitimacy of this hypothetical individual's rational, economic decision-making does not mean this is the correct move for other people. As your question alludes to, the stock market does confer expected benefit over stuffing your cash in a mattress. To some other hypothetical individual on the margin (aka the decision-making fence), this value-add over The Bank of Mattress might make temporary illiquidity worth it. It may even incentivize them to save instead of consume, as the extra utility of the stock market pushes them over the fence. And both people are viewed as rational, utility-maximizing.

@Surge's comment alludes to some more in-depth parameters of personalized utility functions that we can play around with: time discounting, loss aversion, present bias, and risk aversion to name a few.


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