THE BENEFITS OF RISK-TAKING

How a Stoic philosophy can triumph in business

- STORY BY ROBERT ROSENKRANZ

THE MOST COURAGEOUS business decision I have made in my life was the one I made in my negotiation with Joe Mailman to put my entire liquid net worth at risk in the firm I was launching. Not only was my commitment extremely large relative to my means, it was highly leveraged, as well. A loss that would have cost Mailman a barely noticeable ten percent of his investment would have wiped me out. It may have appeared both foolhardy and impulsive for me to agree to such a thing, no less to suggest it.

Appear is the key word. Human psychology has evolved so that losses loom much larger in our minds than gains, and in fact most of us prefer the certainty of a smaller win over the chance of a larger gain. This is especially true when the chance of the larger gain is accompanied by the risk of a significant loss. Daniel Kahneman won the Nobel Prize in Economics for his work on just this topic: prospect theory.