Forensic economist Barry Ben-Zion applies the economic principle of “marginal utility” to fraud cases.
For a person who has very few dollars, the first few dollars bring great satisfaction.
But as wealth accumulates, each dollar means less and less and may lead a person to use less caution in investing.
“You spend your money for the most important things first, food, shelter, a car,” Mr. Ben-Zion said.
“If you have a lot of money, it’s called diminishing marginal utility of money.
“Each dollar you have has less and less value to you. The utility to you is much lower the more dollars you have, on the margin. You’re not giving up your food, your shelter. You may not even miss it.”
“If you have $100 million, $1 million doesn’t mean that much,” Mr. Ben-Zion said.
The principle of diminishing marginal utility is the primary rationale behind the progressive income tax, he said.
“In order for taxes to be equally painful, you need to tax more from people whose marginal utility is low as compared to people with high marginal utility because they don’t have too many dollars.”
For a person to lose “the only $50,000 he has in savings” in a fraud, “those are the tragic cases,” Mr. Ben-Zion said.