An Economist Walks into a Brothel Quotes

“Unusual markets often provide the clearest insight into how risk is assessed, bought, and sold. Because nothing is hidden in markets like sex work, the subtleties that exist in all markets are made obvious. This is why we can learn the most by studying how business is conducted at the edges of the economy and apply that knowledge to more typical economic transactions.”
― Allison Schrager, An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk

“Playing good poker means only playing 12 percent of your hands. You can’t make money if you play more than 30 percent, and if you play 100 percent you’ll go broke every day.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“If you were superneurotic about getting to the airport, you could use the same technique. Suppose you drove to the airport nine hundred times and estimate airport-travel volatility: the range of time it usually takes to get there is twenty to forty minutes. You’d also notice that a three-hour airport trip caused by a major traffic accident is less probable. It only happens 1–2 percent of the time. The traffic accident is called a “tail risk” because a three-hour trip is so unlikely it is in the tail of normal distribution.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“law of large numbers, which says if you repeat an experiment enough times, you can estimate accurate probabilities of what might happen in the future.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“Dream, diversify—and never miss an angle. —WALT DISNEY”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“DOOMED TO REPEAT HISTORY BECAUSE WE ARE OFTEN BLIND TO UNCERTAINTY”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“In 1975, the University of Chicago economist Sam Peltzman observed that improving car safety caused more accidents because people took more risks when driving. With power steering, antilock brakes, widespread use of seat belts, and driver-assist alerts if we are too close to another vehicle or pedestrian, cars are safer than ever, but we also drive faster. Taking a bigger risk because technology imparts a feeling of safety is known as the Peltzman effect.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“Fun is like life insurance; the older you get, the more it costs. —FRANK MCKINNEY “KIN” HUBBARD, AMERICAN CARTOONIST, HUMORIST, AND JOURNALIST”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“The Bowie Bond, as it was known, was attractive to insurance companies, which have to make regular payments to their beneficiaries years into the future. Owning a long-term bond, like a Bowie Bond, is how they hedge risk, because they need an asset that offers a regular stream of payouts. Prudential paid $55 million and in exchange got a 7.9 percent interest payment on their principal for fifteen years.* These interest payments were financed by the income generated by royalties from Bowie’s albums recorded before 1990. If for some reason the music did not generate enough revenue (and exhausted a reserve fund), Bowie’s catalog would be owned by Prudential. But that did not happen, since the income from music royalties is fairly stable for older artists with established catalogs.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“Hedging is one of the oldest and simplest financial strategies, but it is often neglected or confused with diversification. Diversification eliminates unnecessary risk by owning shares in lots of different assets; it could be pooling risk with other celebrity photographers or owning an index fund that contains lots of stocks in your investment portfolio.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“The most common ways we get probability wrong are: We overestimate certainty. When we do this, it doesn’t even occur to us that a decision has any risk associated with it. We assume if we’re buying a house, prices will only go up. Or people move to Hollywood because they believe they are better looking or more talented than most others. The Antars never thought they’d get caught. They believed Sam would always outsmart the SEC and IRS. The other criminals I interviewed didn’t consider getting caught a possibility either. We overestimate the risk of unlikely events. We assume a remote and terrible event is more likely than it is. This is why many people are more afraid of flying than driving, even if they know the odds of dying in a car accident are higher. A plane crash is especially horrific, which is why we put higher odds on its happening. We assume correlations that don’t exist. After being dealt a few good hands in poker, you could think you’re on a roll and that the next hand is bound to be good too. In fact, each hand you are dealt has nothing to do with the last. When it comes to crime, getting away with something once, or many times, creates an illusion you’ll get away with it the next time. The Antars assumed that because they pulled off tax evasion, they could also get away with securities fraud. Wrong again, and their earlier success led them to take bigger risks to continue the fraud. We put a big weight on very likely or unlikely events and put almost no weight on anything that happens in between. The difference between a 0 percent and 5 percent probability feels huge because it creates possibility. The difference between 100 percent and 95 percent also feels meaningful because it creates or eliminates risk. But the difference between 50 percent and 55 percent barely factors into our decisions. The closer we get to certainty, the more we weight a probability, but mathematically, a 5 percent increase should be given equal weight no matter what.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“Risk, a measurement of uncertainty, is a human construct that attempts to bring order to an unknowable future. Risk is meant to help us understand what we are up against and plan for what might happen, good or bad. It also helps us weigh different options and see which ones bring us closer to our goals.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“Risk is our guess about what the future holds; more precisely, it is the range of things that might happen and how probable each event is.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“They feel more comfortable when they can put odds on success. We all do.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“A good risk estimate requires data that can do two things: (1) reveal lessons from the past that will be relevant in the future, and (2) predict that certain past outcomes are more likely than others.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“It sounds simple, but knowing what you want might be the hardest part of risk management.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“If you don’t know where you are going, you might wind up someplace else. —YOGI BERRA”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“It may seem counterintuitive, but the best way to define a risky reward is to start by defining the opposite of risk, whatever is risk-free.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“Financial science aims to separate out what portion of a price is driven by risk. Once that price is clear, it becomes much easier to identify the risks we face and figure out the best ways to take and reduce risk.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“Only those who will risk going too far can possibly find out how far one can go. —T. S. ELIOT”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“From 2008 to 2016, the average production budget for an action movie was about $104 million versus a more modest $19 million for the average horror movie.”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk

“One of Cole’s favorite catchphrases is to focus on things that are “small enough to change but big enough to matter”
― Allison Schrager, An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk