“A common simplifying approach to quantifying a risk is simply to multiply the likelihood of some loss by the amount of the loss. This is simple but can be misleading. This assumes the decision maker is “risk neutral.” That is, if I offered you a 10% chance to win $100,000, you would actually be willing to pay as much as $10,000 for it. And you would consider it equivalent to a 50% chance of winning $20,000 or an 80% chance of winning $12,500. But the fact is that most people are not really risk neutral.”