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Zusammenfassung von An Economist Walks into a Brothel

Name: An Economist Walks into a Brothel
Rating: 4 (184 reviews)
Author: Allison Schrager

Allison Schrager

And Other Unexpected Places to Understand Risk

4 (184 Bewertungen)

19 Min.

Kurz zusammengefasst

An Economist Walks into a Brothel by Allison Schrager is a unique exploration of risk-taking behaviors. It explains how economics and data can be applied in everyday decisions, especially those involving risk, and the benefits of using data to improve outcomes.

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An Economist Walks into a Brothel
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What’s in it for me? Learn to make better, more rewarding choices.

When we think of the word “risk”, we tend to imagine life-and-death situations, those rare make-or-break choices that come along once in a blue moon. But risk is something all of us deal with every single day of our lives. When you put off leaving for work until the very last minute, you risk showing up late. When you try a new restaurant, you run the risk of having a bad meal. But the potential reward, whether it’s more time with your kids or discovering a new favorite food, makes it worth the risk.

The problem is that most of us have a flawed understanding of what risk really means. We see it in terms of cause and effect. If we do this thing, then that thing will happen. But life is rarely that simple. Every risk carries with it a whole range of potential outcomes. When we fail to take those into consideration, we can get into trouble fast.

In these blinks, we’ll take a look at some of the most common misunderstandings about the nature of risk. We’ll learn to understand and avoid these pitfalls by looking at how people in extremely risky professions mitigate their own risk, whether it’s millions of dollars on the line or their own lives. Through them, we’ll see how we can take smarter, more informed risks in our own lives.

In these blinks, you’ll discover

what Jet Skis can teach us about insurance;
why you shouldn’t play poker against a multi-millionaire; and
how Hollywood studios diversify their risk against box-office flops.

Every risk should be taken in service of a clearly defined goal.

What do you do when you want to make a bold, risky choice? Do you just dive in, whatever the consequences? If you do, then you may want to reconsider your approach.

The key message here is: Every risk should be taken in service of a clearly defined goal.

How can you determine if a risk is worth taking if you don’t have a clear goal? It’s impossible. So, the first thing you need to do is define an ultimate goal. Visualize it in your head and make it specific. If you're thinking about a career move because you want to make more money, figure out what you want it for and how much it'll take for you to achieve that goal.

Once you’ve decided on that goal, think about all the ways you could possibly achieve it with little or no risk. Why take chances when you don’t have to?

Okay, this won’t always be possible. Not every goal is going to have a risk-free option. And sometimes, the risk-free option isn’t actually possible or even desirable.

Let’s say you’re house hunting. You want a house of a certain size, in a certain location, at a certain price. Now, you might find the perfect house but have to pay more to guarantee the winning bid. If you can’t afford to do that, you might have to settle for something smaller. The risk-free option, paying whatever price necessary to get the house, may not be possible for you.

Or take a more extreme example: Nevada’s legal brothels. Sex workers are in one of the world’s riskiest occupations. Women in this line of work risk their personal safety, their health, their reputations, and in most states, they run the risk of arrest. But they do it because the work can be extremely lucrative. Their goal is to earn a great deal of money.

Renting a room in a legal brothel eliminates or reduces much of the risk inherent in the work. The sex workers are required to have regular health screenings, and security guards provide protection from potentially dangerous clients. But here again, the risk-free option comes at a price. In addition to the costs associated with relocating to Nevada, the women turn over about half of their earnings to the brothel owner.

At the end of the day, the rationale behind every risk we take is always the same: the price of achieving our goal without risk is just too high. But how do we decide what risks are worth taking? There’s no one right answer to that question but there are some wrong ones that we’ll discover in our next blink.

Past results are a poor way of calculating future risk.

How do you decide what time to leave for work in the morning? Let’s say your average commute is half an hour and you need to be at the office by 08:00 a.m. So every day you leave at 07:30 a.m. and every day, you arrive at exactly the same time, right? Of course not. In the real world, there are a whole lot of things that can go wrong.

If the only thing you’re basing your decision on is the fact that your commute usually takes half an hour, sooner or later you’ll end up being late.

The ways we perceive risk are not always entirely rational.

Do you play the lottery? Millions do. And it’s a fair bet that most of them know they probably won’t win. After all, the chances of hitting the jackpot are in the millions. In other words, we’re simply throwing money away on our useless lottery tickets.

So, with the potential losses outweighing the potential positives, why do so many of us play the lottery?

Diversification helps reduce unnecessary risk.

Risk analysis divides types of risk into two broad categories. Idiosyncratic risk is unique to a specific field or asset. For example, a change in leadership at a particular company you own stock in would be a type of idiosyncratic risk. Systematic risk affects the entire structure rather than just the individual. If a recession hits, it’ll impact the entire stock exchange and not just your particular stock.

Let’s focus on idiosyncratic risk. How do you best prepare for that?

Hedging and insurance help to protect you from potential loss.

Risk management attempts to answer a very simple question. How can we reduce or eliminate the downside while still hanging on to the potential upside? As we’ve just found out, diversification helps us to handle idiosyncratic risk but systematic risk is harder to control. It requires more than one potential solution.

The key message here is: Hedging and insurance help to protect you from potential loss.

It’s important to protect yourself against uncertainty as well as risk.

As we’ve learned, calculating risk involves setting a clear goal and planning for all of the potential outcomes we can imagine happening. But what do we do about the outcomes we didn’t imagine?

The key message here is: It’s important to protect yourself against uncertainty as well as risk.

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Worum geht es in An Economist Walks into a Brothel?

An Economist Walks Into A Brothel (2019) explains how every decision we make carries an element of risk. It can’t be avoided but we can learn to examine those risks, weigh them against the possible rewards and make smarter decisions in our careers, finances and life. Life lessons from high-risk professions like professional poker and the armed forces illustrate the fine art of taking a risk.

Wer An Economist Walks into a Brothel lesen sollte

Anyone weighing an important, potentially risky life choice
People who look but don’t leap
Anyone who has seen a risky decision backfire

Über den Autor

Allison Schrager is an economist and journalist with a background in retirement planning, finance, public policy and media. Her writing has appeared in the Economist, Bloomberg Businessweek, Wired and numerous other outlets.

Kategorien mit An Economist Walks into a Brothel

Persönliche Entwicklung Psychologie Wirtschaft

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