A world where it takes 30 hours of minimum-wage work to pay the rent, is very different to a world where it takes 120 hours of minimum-wage work to pay the rent. It’s a factor of 4—just half an order of magnitude—and it already means

  • a leisurely life where you can eat out, drink beer, play music, chill with friends, basically a great mode of existence, versus
  • a life where you would need to work two jobs in order to pay for kids and a car; if you keep just the one job, you can fight for overtime so you also have enough money for food.

A factor of 30 is the difference in median incomes between U$A and the DRC. Basically one-and-a-half orders of magnitude from richest to poorest. Just one order of magnitude is the difference between man and mouse (length). And in finance, errors of a few basis points can, for certain structured or levered positions, mean the difference between a good bet and a bad bet.

1.3! Great!!!
0.7! Really Bad!!!

Parameters matter. Elasticities matter. Magnitudes matter. A lot. Think about that the next time you look at the coefficients in your linear regression.

See also: the nearly-invisible but all-important left-hand scale of the chart you’re reading.


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