We stink at dealing with large numbers, and large in this sense is any number bigger than twenty. Consider sports betting, where people estimate the underdog has a greater chance of winning than they actually do. As Justin Wolfers and Erik Snowberg write in this paper exploring the problem, we can't tell the difference between a small chance and a tiny one. I believe this is why white-collar criminals, like Bernard Madoff, get generally lenient sentences, and way more lenient sentences than bank robbers - we stink at comprehending the amount of damage they did to the company's shareholders, usually thousands of times more money than a simple robbery. So we need to be especially careful when other people are discussing how to spend our money and bandying numbers back and forth.
A billion is this number:1,000,000,000 A million is this number: 1,000,000 A billion is a thousand times as big as a million. Yet our understanding of the difference isn't very good, leading to absurd situations in Washington where attention paid to legislation seems to have no correlation to the amount of money at stake. A lawmaker may run to the press, criticizing some $10 million of federal spending as wasteful, but that's a drop in the bucket compared to the $700 billion bailout amount. Furthermore it promotes a bias toward using numbers on the small end of the scale - $1 billion sounds smaller than $900 million even though it's a larger number by $100,000,000. For comparison the first number is $10,000,000 and the second is $700,000,000,000 - the second number is seventy thousand times as big. The short hand way of writing these numbers hurts our comprehension and our ability to make rational decisions about the amounts proposed. Instead of saying billion, let's say "thousand million" - as in our bailout costs seven hundred thousand million dollars. Sure it sounds awkward, but the numbers being discussed are huge and we have to use what tools we can to help our brains process the suggested amounts.
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