An Economist Walks into a Brothel audiobook cover - And Other Unexpected Places to Understand Risk

An Economist Walks into a Brothel

And Other Unexpected Places to Understand Risk

Allison Schrager

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Categories:
Personal DevelopmentPsychologyEconomics

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Mind Map

An Economist Walks into a Brothel
Rethinking Risk+
1. Good Planning (Goals)+
2. Current Data & Rationality+
3. Diversification+
4. Hedging+
5. Insurance+
6. Flexibility (Uncertainty)+

Quiz — Test Your Understanding

Question 1 of 6
According to the text, what is the primary reason sex workers in Nevada choose to work in legal brothels despite having to give up about half their earnings?
  • A. It is the only legally permitted way to work in the state of Nevada.
  • B. Giving up half their earnings is a price they pay to significantly reduce the inherent physical and legal risks of their profession.
  • C. The brothels guarantee them a specific number of wealthy clients every month.
  • D. They are able to avoid paying state and federal taxes on their remaining income.
Question 2 of 6
Why is it difficult for Hollywood studios to simply replicate the formula of past blockbuster movies to guarantee future success?
  • A. Box office revenues follow a skewed distribution pattern, making it hard to predict which movies will actually succeed.
  • B. Systematic risk in the entertainment industry prevents studios from collecting accurate audience data.
  • C. Directors and actors constantly change their creative goals, altering the original mathematical formula.
  • D. The utility of a movie is strictly emotional, which economists cannot measure with any type of data.
Question 3 of 6
In the high-stakes poker tournament example, why might a multi-millionaire opponent refuse a guaranteed deal to split the prize money?
  • A. He is acting completely irrationally because economists have proven humans are strictly risk-averse.
  • B. He is demonstrating idiosyncratic risk by ignoring the mathematical odds of the card game.
  • C. He places a higher emotional value, or 'utility,' on the experience of playing for the win rather than the actual monetary value.
  • D. He is using the tournament as a hedging strategy against his other financial investments.
Question 4 of 6
What is a major downside of using diversification to manage your risk?
  • A. It increases the likelihood of a massive financial windfall, which can lead to unmanageable taxes.
  • B. It only protects against systematic risk, leaving you highly vulnerable to idiosyncratic risk.
  • C. It eliminates idiosyncratic risk but reduces the chance of a huge windfall and leaves you vulnerable to systematic risk.
  • D. It requires sacrificing all potential gains in order to completely eliminate the possibility of any loss.
Question 5 of 6
Based on the book's definitions, how does 'hedging' differ from buying 'insurance'?
  • A. Hedging involves paying a third party to absorb all risk, while insurance requires you to manage the risk yourself.
  • B. Hedging requires sacrificing some potential gains to reduce the possibility of loss, effectively removing extreme outcomes.
  • C. Hedging is used exclusively to protect against systematic risk, while insurance only covers idiosyncratic risk.
  • D. Hedging guarantees a massive windfall if the market crashes, whereas insurance only covers the exact amount lost.
Question 6 of 6
According to the text, what is a crucial strategy for dealing with 'uncertainty'—outcomes that you completely failed to imagine or predict?
  • A. Relying entirely on advanced technological tools and predictive computer algorithms.
  • B. Sticking strictly to your original, well-laid plans regardless of changing circumstances.
  • C. Maintaining flexibility, staying open to new ideas, and having the humility to change course.
  • D. Purchasing additional insurance policies immediately after the unexpected event occurs.

An Economist Walks into a Brothel — Full Chapter Overview

An Economist Walks into a Brothel Summary & Overview

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.

Who Should Listen to An Economist Walks into a Brothel?

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

About the Author: Allison Schrager

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.

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