August 02, 2019

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Economist and journalist Allison Schrager visited a legal brothel, chased celebrities with the paparazzi, attended conferences with surfers, and interviewed high-ranking military generals, all to better understand the nature of risk. 

In her book, "An Economist Walks into a Brothel," Schrager explores how people manage risk outside the world of finance, and considers the most interesting lessons that can be learned from people in some of the riskiest professions.

Three Takeaways:

  • If you want to reduce risk, you must be willing to pay a high cost, says Schrager. She learned that some legal sexworkers in Nevada willingly pledged half of their earnings to the brothels that employ them, in return for a trustworthy clientele and medical and security services. 
  • It’s a gamble — taking on less risk may mean a smaller reward. With all the unpredictability involved in the life of the paparazzi, there is a higher chance they will snap the coveted celebrity shot if they work in tandem with others. The tradeoff? Photographers who pool risk also have to share their earnings.
  • Schrager says: in order to manage risk better in our lives, we need to first recognize what our ultimate goal is. We also need to consider how much we are willing to pay to reduce risk and if the cost seems justifiable to us. 

More Reading:

  • Are you a risk-averse person or do you prefer the term “prevention-focused”? According to Harvard Business Review, studies have shown that, when put on the spot, risk-averse people make the riskiest decisions.
  • When the Boeing 737 Max 8 Ethiopian Airlines flight crashed earlier this year, concerns started surfacing about whether the aviation industry was risking safety for profit
  • Listen to this Planet Money episode that explores how two economists encouraged farmers in Ghana to take risky decisions by introducing a safety net: insurance.

Business, economics, risk, Allison Schrager

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