"Every year, I find 2 million dollars and I give it away to other people. You understand what I’m trying to say about the debt? The debt’s a state of mind. Smart people can get money. If you need money, get money."

A student had asked Eben, “How did you pay your [law school] debts?” He responded by defining “debt” as anxiety, counteracted by confidence in one’s ability to get money.

In the remaining lectures, I expected Eben to extended the analogy from debt to risk. I was disappointed that he never did. It's important that we not tolerate society’s slapping the word “risk” on what is really “ignorance”. The economists' claim that "markets reward risk" treats intelligence as magic. It's an anti-intellectual attitude, detering people from learning new things, asking new questions, creating new theories about the world. It invites us to squander our educations, at a time when we should be learning how to add new value to the world.

When I was growing up, I used to think that entrepreneurs were the dumbest people. What kind of idiot plays roulette with his own welfare and dignity? The economists have a pat explanation—they call him “risk-loving”—but then, how dare he risk the welfare of his dependents?

One answer is that there’s no such thing as risk, and no such thing as risk-love or aversion.

• We might characterize, equally usefully, people who don't buy insurance as either risk loving, or as risk-averse about their future incomes. They seem risk-averse because of the ignorance of the insurance company, which can't offer income-insurance because of the moral hazard: insurance companies can’t know the subjective mindset accompanying your losing your income.
• Tightrope walkers aren’t risk-loving people. They’re people educated in tightrope walking. For you and me to walk tightrope would be dumb; for tightrope walkers, it’s their payoff for learning to walk tightrope.

But then WE’RE dumb, to call tightrope-walkers “risk-loving.” The beholder of “risk” characterizes as random, outcomes that are really caused by a latent differential in information or understanding. If all the people who engaged in a random-outcome activity were equally ignorant, then the winners this round would be the losers next round. The only way to explain serial entrepreneurs—the people who continually march to the beat of a different drummer, and continually succeed—is that they know a "truth," a contingent truth, that the others don’t know. An entrepreneur makes a novel prediction, and justifies it with a hypothesis. The successful entrepreneur has a successful hypothesis with which to make new predictions. Proof of concept and running code. I wouldn’t call that risk. I’d call that science.

Every year, and while I’m talking to you, I have to find 2million dollars, or else I’ll have to fire people I really care about. That feels to me the same way is it does to you, except that I don't have the option of bankruptcy. (Except in the legal way.)

Whenever Eben exhorted us to take risks, he might have equivalently exhorted us to learn more about how the world works -- how money and alliances get made. I think the minor switch in rhetoric would yield a lot better result in convincing people not to go to law firms. (Although it would also mean blending his first two goals for the class -- the "descriptive" and the "prescriptive" -- which might rub some paranoids the wrong way.)

But he told us many things about the world that we didn't know. He told us that our grades say nothing about who we are, and that they determine nothing about who we can be. Which would imply -- I don't pretend I find it easy to believe -- that if we botch Crim Law tomorrow, we've risked nothing, and lost nothing, as long as we keep our heads about us for the real challenges that follow.

I hope he's right. Good luck tomorrow. More importantly, sleep well.

-- AndrewGradman - 05 May 2008