"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."

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

In the remaining lectures, I expected Eben to extend 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 would be more usefully called “ignorance”--our own ignorance. When the economist claims that "markets reward risk," he characterizes wealth-distributions as random, which we could precisely predict if we revealed the latent differentials in information or understanding. That's an anti-intellectual attitude that treats intelligence as magic. It invites us to recite last year's knowledge rather than create new models of who knows what.

"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.)"

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

One explanation is that there was never such thing as risk, nor such a trait as risk-love or -aversion.

• We may just as well characterize people who don't buy insurance as risk-loving or risk-averse -- risk-averse, that is, about drawing down their future wealth. We don't discuss this risk-aversion because insurance companies can't capitalize upon it -- they can't offer income-insurance because of the moral hazard -- they can’t know the subjective mindset accompanying your losing a job. Your risk-love or -aversion equals the ignorance of the insurance company.
• 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. WE'RE the idiots -- to think that tightrope-walkers are taking a risk, and to call them “risk-loving” -- to pay them money to "gamble their lives" before us!

If all the people who engaged in a random-outcome activity were equally ignorant, then the winners in this round would be the losers in the next. That does not happen. An entrepreneur makes a novel prediction, justified with a hypothesis. The successful entrepreneur has a successful hypothesis and justifiably applies it to new predictions. The serial entrepreneurs—the people who continually march to the beat of their own drummer, and continually succeed— have discovered a contingent truth. Their behavior only looks risky because they haven't made their hypotheses public. Business students deserve our utmost respect, as academics, for having the boldness to create "new value" -- new knowledge.

But business students don't share their research with the academy. They call it "research and development" and they hoarde it in corporations. Thus, the money-makers in the "free market" have a vested interest in perpetuating the myth of "risk." So I am surprised that Eben uttered that myth in his own classroom.

Whenever he exhorted us to take risks, Eben might have equivalently exhorted us to learn more about how the world works -- how money and alliances get made. If this class's "prescriptive" message (don't go to firms) were subsumed under its "descriptive" message (understanding society from multiple perspectives) -- if it appealed to intelligence rather than danger -- it might have won more followers.

-- AndrewGradman - 05 May 2008