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An Economist Walks Into A Brothel and Other Unexpected Places To Understand Risk

Published:

Author(s)
Allison Schrager

I discovered this book from watching Quart’s series on Risk. The book provides an overview on risk, how it’s calculated and ways it plays out. Book title is clickbait, but it covers the essence of the book.

Basically, Nevada allows prostitution in certain counties through legalized brothels. The brothels are far more expensive than visiting an independent sex worker. The brothel’s premium can be explained through risk.

While the street sex workers are much cheaper, it’s a riskier proposition for both the sex worker and the client. For the sex worker, while they have to give half their earnings to the brothel along with paying for expensive, its far safer. For the client, they don’t have to worry about getting busted, it’s also safe and inconspicuous.

While the brothel isn’t brought up after this, it contains various elements of risk that the book expands upon. The main elements boil down to:

  • To get something you must be willing to risk something,
  • if you’re unwilling to take risks, accept a lower reward or be willing to pay for higher certainty
  • there are two main ways to mitigate risk
    1. Hedging where you limit upsides to prevent big downsides.
    2. Insurance limits downsides and opens unlimited upsides… for a fee. Not just a product, even regular tech
  • Of course you can play with these mitigation’s to get bigger rewards. Various things have made it possible to do riskier things.
  • You can’t predict it all and no level of mitigation can ensure smooth sailing. So stay humble and open minded.

While it’s interesting to see how risk works, it’s rather haphazard at times introducing case after case after case. As interesting as some of them were (surfer risk conference, what actually reduces crime), others seemed like padding for pages. Also, even though she’s a retirement economist, I don’t trust her retirement investment advice.

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