Throughout our lives, we are forced to take some form of risk at any one time. The unfortunate thing is, many people think that they are in either one of two groups when it comes to taking risks ; Either they play it safe or are playing it risky all the way. Thankfully, Allison Schrager, author and economists, tells us that this is not necessarily the case. From her book, she distils risk as something we do every single day, be it from choosing whether to take a cab or a bus, or whether to jaywalk or walk the extra mile to the pedestrian crossing. Allison shows us that there is a science to risk-taking that will very well maximize our chances of coming out victorious in any situation, through some great examples we can use in our daily lives.
Take for example the brothels that Allison visited in Nevada. All of these brothels employ legal prostitutes but at a price; The very hefty price at that could cost the girls as much as half their salary, yet these brothels are still teeming with business. Do the prostitutes still earn money this way? Well according to Allison, the economics of that is yes! Firstly, at these legal brothels, the price that one pays is approximately 300% more, and that is rather surprising. One would imagine that something obtained legally would be a lot cheaper as compared to something obtained illegally. Take for example illegal drugs that are on the streets. Most of them are priced extremely high due to their difficulty in sourcing them as well as the risk in the drug dealers getting caught with stocks of their drugs. But this doesn’t apply to prostitution!
For one, the reason why customers are willing to pay such a high mark-up price is because of the risk-free transaction. They don’t have to worry about the police, getting blackmailed or other legal matters that may put them at risk. That aside, why would the prostitutes be willing to part with half their pay? Well, the legalised brothels effectively have a steady supply of customers, and there is protection and complete discretion in a house that is legalised. No more worrying about customers making a ruckus or not paying up after the transaction; security takes care of all that for you. Now if you add these two factors together, the price to pay for such a low risk actually yields a higher return!
An Economist Walks into A Brothel is a book about strategies and principles for dealing with risk by introducing the readers to different industries like the brothel scenario. Instead of thinking only of a fixed goal, think of it instead of how you are going to achieve your goal with no risk or as little risk as possible. Everyone should give this book a read if you are interested in knowing how to apply financial and economic concepts in your daily lives to make better decisions.