"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”. When the economist claims that "markets reward risk," he has characterized as random, distributive outcomes that could be predicted by revealing latent differentials in information or understanding. That's an anti-intellectual attitude that treats intelligence as magic, deterring people from creating new models of who knows what, inviting us to squander our educations in reciting old knowledge. It's the business schools -- the least intellectual of all! -- that have the boldness to ask their students to add new value (new knowledge) 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 future 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 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 call tightrope-walkers “risk-loving” at all -- to pay money to see them "gamble their lives"!

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. 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, and haven't made it public. I wouldn’t call that risk. I’d call that science. Research and development. The money-makers in the "free market" have a vested interest in perpetuating the myth of "risk."

I am surprised that Eben uttered that myth in his own classroom. Whenever he 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 switch in rhetoric would have made the argument against going to law firms more attractive, because it appeals to intelligence rather than danger. But perhaps that was an artifact of his separating the descriptive from the prescriptive elements of the course.

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.)

But Eben does speak from experience. And so I am tempted to trust -- have faith in -- take a risk upon -- his argument that our grades say nothing about who we are, and that they determine nothing about who we can be. 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.

That's an empowering hypothesis. Good luck tomorrow. More importantly, sleep well.

-- AndrewGradman - 05 May 2008