Earlier quoted context omitted.
How do you discount "personal catastrophe" appropriately, though? Surely the volatility in outcomes is very important, and not some simple expected value. A 5% chance of my house burning down is much more costly to me than 5% of the economic cost of my house burning down. Indeed, there's not really a (reasonable) discounted price I will take for a chance of my house burning down. Of course, this kind of aggressive av…
You normally wouldn’t discount linearly. But that doesn’t mean you can’t put a price on it. There’s a limit to how much you’d pay for insurance, for example. Some risk is part of life.
$5k this year is small compared to future potential career earnings; not much of a difference in probability of losing those is required to far exceed $5k. Just strict linear expected value could be bad, let alone when one weights the risk and volatility.