Into the Impossible With Brian Keating - Allison Schrager: Brothel Economics And Other Unexpected Places to Understand Risk (#128)

Episode Date: March 23, 2021

#RiskAnalysis #RiskManagement #Economics Learn how an economist analyzes and manages risk in finance, love, retirement, and life in general in this wide-ranging discussion with first-time author Allison Schrager. Allison is a Ph.D. economist, senior fellow at the Manhattan Institute, contributing editor at City Journal, and co-founder of LifeCycle Finance Partners, LLC, a risk advisory firm. Allison diversified her career by working in finance, policy, and media. She led retirement product innovation at Dimensional Fund Advisors and consulted to international organizations, including the OECD and IMF. She has been a regular contributor to the Economist, Reuters, and Bloomberg Businessweek. Her writing has also appeared in Playboy, Wired, National Review and Foreign Affairs. She has an undergraduate degree from the University of Edinburgh and a PhD in economics from Columbia University. She lives in New York City. @AllisonSchrager https://www.allisonschrager.com/ https://www.manhattan-institute.org/expert/allison-schrager https://www.lcfpartners.com/ Support the podcast: https://www.patreon.com/drbriankeating And please join my mailing list to get resources and enter giveaways to win a FREE copy of my book (and more) http://briankeating.com/mailing_list.php 📝 00:00:00 Intro 00:03:40 How did you come up with the title and the cover? 00:11:48 Should you be missing 1 out 10 of your flights? How early should you arrive at the Airport? 00:14:12 What is the origin of the word "risk" and risk analysis? 00:16:18 How do savvy investors go so wrong at underestimating risk? 00:29:33 How is risk apprised in military strategy? 00:31:41 How can risk be taken advantage of? 00:33:11 The risks of academia. 00:41:53 What did you learn about the risks of the contemporary publishing industry? 00:43:39 The risks of marriage and children. 00:46:29 Allison's next book on why we hesitate to take new risks. 00:48:47 Are there changes you would make in your book? 00:50:27 The risks of speculations and investments like Bitcoin. 00:59:22 What would you write in your ethical will? 01:00:51 What would you leave in your billion-year legacy time capsule? 01:01:39 What advice would you give your younger self? 🎥 🎥 Watch my most popular videos🎥 🎥 Frank Wilczek https://youtu.be/3z8RqKMQHe0?sub_confirmation=1 Weinstein and Wolfram https://www.youtube.com/watch?v=OI0AZ4Y4Ip4?sub_confirmation=1 Sheldon Glashow: https://youtu.be/a0_iaWgxQtA?sub_confirmation=1 Michael Saylor The Physics of Bitcoin https://youtu.be/CaN_CDKqXOg?sub_confirmation=1 Sir Roger Penrose, Nobel Prize winner: https://www.youtube.com/watch?v=AMuqyAvX7Wo?sub_confirmation=1 Jill Tarter https://youtu.be/O9K9OBd3vHk?sub_confirmation=1 Sara Seager Venus LIfe: https://youtu.be/QPsEDoOTU6k?sub_confirmation=1 Noam Chomsky: https://youtu.be/Iaz6JIxDh6Y?sub_confirmation=1 Sabine Hossenfelder: https://youtu.be/V6dMM2-X6nk?sub_confirmation=1 Sarah Scoles: https://youtu.be/apVKobWigMw Stephen Wolfram: https://youtu.be/nSAemRxzmXM 🏄‍♂️ Find me on Twitter at https://twitter.com/DrBrianKeating 🔥 Find me on Instagram at https://instagram.com/DrBrianKeating 📖 Buy my book LOSING THE NOBEL PRIZE: http://amzn.to/2sa5UpA 🔔 Subscribe for more great content https://www.youtube.com/DrBrianKeating?sub_confirmation=1 ✍️Detailed Blog posts here: https://briankeating.com/blog.php 📧Join my mailing list: http://briankeating.com/mailing_list.php 👪Join my Facebook Group: https://facebook.com/losingthenobelprize 🎙️Please subscribe, rate, and review the INTO THE IMPOSSIBLE Podcast on iTunes: https://itunes.apple.com/us/podcast/into-the-impossible/id1169885840?mt=2 🎙️Listen on all other platforms: https://wavve.link/into A production of http://imagination.ucsd.edu/ Support the podcast: https://www.patreon.com/drbriankeating Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, friends. Are you considering a lucrative career and working in a brothel? Well, neither am I, but if you are considering such a new juncture in your career, you will certainly enjoy today's guest, Alison Schrager, an economist, an author of a book called An Economist Walks Into a Brothel, and other unexpected places to understand risk. And of course, the subtitle is what was so fascinating to me. We talked about many, many different things, including the economics and risk reduction mechanisms not only for brothels, admittedly a little bit less applicable to the erudite listeners of this very podcast, but also risk reduction in things like life insurance, even getting married, having children. We talked about all these topics, as well as her

experiences with professional poker players, big wave surfers, Nobel Prize winning economists, and other fascinating characters that make up the many examples in very clear and easy to understand prose in this book. It's really an unexpected little treat that I happen to find out from a well-known scientist, Robert Kiyosaki, otherwise known as Rich Dad slash Poor Dad. I don't know. But that's where I heard about Allison. I listened to his podcast, and sometimes it's pretty interesting. You'll find very, very interesting intellectuals such as Allison Schrager. So that was an unexpected place to find her, and I am delighted that I did. So stay tuned today. you'll find out kind of the answers to many questions that we take for granted in a given day,

such as how early should you leave to get to the airport for your next flight, how you could handle the risks of dealing with COVID versus responding to a text message as you're driving your car, and other very interesting risk tidbits, backed by good, hard science, and really explained in a clear and convincing way. You'll hear about Allison's upcoming book, which is also about risk, and including risk in love. And we just talked about so much stuff today. I know you're going to enjoy it. So sit back, relax, and enjoy this episode of Pandemic Podcasting, Into the Impossible, with yours truly, Brian Keating.

Welcome, everybody, to this episode of Into the Impossible. And today we have on a change of pace, a spectacular guest who's written a phenomenal book that I found out from none other than everyone's favorite economist and financial advisor, Robert Kiyosaki. Yes, rich dad, poor dad, is where I first discovered Allison. Allison is the author of the book, An economist walks into a brothel and other amazing stories about how human beings can best manage that all elusive, yet all important factor of life, which is risk and the management thereof. And she offers a great deal of tactics and tricks and strategies for us to deal with risk in our lives, whether we be big wave surfers, whether we be stock market aficionados, or whether we happen to work in a brothel,

which I've stopped doing, but nevertheless is one of the major topics of the book. So, Alison, thank you so much for joining us today. day. And I'm sorry it took so long to get you on the podcast, but I've been fascinated with your book and your work for a long time. Thanks for joining us so much in The Into the Impossible podcast. Oh, thanks so much for having me. So your book has a provocative title, and I wonder if you'd be willing to do the following, which is to explain to us first how you came up with the title and the cover for an economist walks into a brothel. And after that, we'll play a game of risk management where we

look at the various reviews that have been garnered for this fantastic book and we'll examine the dispersion, the standard deviation of those reviews if you're willing to do so. But first, tell us, how did you come up with the name of the book, the title of the book, and what the subtitle is all about? Well, I'm terrible at titles. I did come up with the title, but not as the book title. When I sat down to write it, you know, I wrote down an economist walks into a brothel because for me this was an unusual journey. I'm trained as an economist later as a financial economist. So what we do generally is who sit at our desks and look at data. Actually going into the world and talking to people is generally not what economists do. We're not trained to. We're

not encouraged. We've got terrible social skills. It's not something we do. So when I was making these trips to the Nevada brothels. It was just weird for a lot of of reasons. One, it was a brothel. It wasn't the sort of the environment I'd ever been to. But two, it was just really testing my research ability. I said I wasn't trained. I'm an anthropologist or a sociologist

and I've been trained to talk to people. So actually, like, studying an economic subject up close was for me just stepping into this other world. So I said, I'm not normally a good title person. When I was sitting down to write that first chapter, I kind of just wrote it as a

chapterhead just because it represented to me me crossing that line. And then I didn't think much of it. I'd even forgotten it was a chapterhead. I sort of wrote the book. And then the publisher actually picks your title. And they picked a title I didn't love.

I felt like it was kind of boring. I don't remember what it was. That tells you how boring it was. And we kept fighting. I'm like, I feel like there's a sexier title out there. And I kept throwing out ideas. And they all explained to me why they were so terrible. So then they came back to me a couple weeks later after we agreed on the bad title and they were like,

we think you're right. We should go with something sexier. We realize it's in front of us the whole time. We're going to go with the economist walks into a brothel. She said, I even forgot was the title because I said it was so personal to me. And I was like, I instantly heard it. I'm like, yes, that's it. And the cover, I got to know that's a lot less of a sexy story.

Again, you are presented a lot of, first we had all these. pictures like art. The books with Portfolio who has amazing artists. And they had all these pictures of like women doing risque things. And we're so like, I don't know if this is the right message.

This is really an economics book, a financial economics book. So we discussed that. Then they had a meeting. They had a lot of meetings of the publisher and they said we had a meeting. And we've decided, you're right, we're just going to go with words. And then there was a lot of boring conversations

I won't torture you with about obsessing about colors. Well, it is delightful, if not sparse cover. And as I mentioned, what I've been doing lately is exploring the phase space of riskiness with regard to authors who do come on the podcast. And I ask them if they're willing to go truly into the impossible and confront and respond to the highest verified review on Amazon and the lowest verified review on Amazon. It's kind of fun. but if you are willing, we can do it.

If not, and they only use verified reviews because they have skin in the game, as you talk about. So I will not accept a review by somebody good or bad who hasn't bought the book. Sure. I tend not to read negative reviews, but, yeah, I'm open to hearing it, I guess. This is someone titled Allison Schrager's mother. The best book ever written. This is someone named Robert says, the cleverest application of economics. I know. The title doesn't, if the title doesn't induce you to buy this book, then the first few

pages will do it. Alison Schrager has done a masterful job explaining in plain English, using rather unconventional examples and illustrations of how to take account and manage risk in your life, drawing on fundamental lessons on finance and economics. Do you care to rebut those accusations of this five-star verified review? No, no, it's lovely. I actually don't even know Robert, but that's a very kind thing to say. His last name's Merton. I don't know if you... I'm just kidding.

He did write you a review on the back of the book. We'll get to that in a bit. Okay, here's a negative review. I almost never write a book. Book review that's negative. I heard her on the show talking about some aspect of politics

as an example of exercise and risk management. It was an unusual approach expressed cogently and interestingly so I thought, I bet her book is great. Nope. Once you get past the title, the book's ideas are

not that well developed. She doesn't go deep enough into any of them. But then he says, I only made it through half the book before giving up. So I disagree with this person. You don't have to disagree with them. But I found the book is like a tidal wave of unassailable knowledge and wisdom from disparate field. So I know what I would advise this person, but what would you advise them? I mean, you're not going to connect with everyone. For me, the book, I found the idea. I found the idea is the financial economics incredibly powerful and poorly understood. I think, so I was really inspired to write this book so people could understand these principles better because I think they seem so subtle, but they're actually quite important. I think certainly as I've been observing a lot of

conversation on things like GameStop and day trading, how these principles of risk really sound so simple, but they're really poorly understood. So, I mean, my idea for this book was to take these principles and make them sound easy. I remember the publisher when I explained the principles, he's like, you make hard things sound easy. And sometimes people think because you make something sound easy, it is. And so maybe it just wasn't the right format for this particular reader. I mean, at some degree, I feel like if someone said and finish your book, that's on you. I mean, it's on me, the author. Because, I mean, it's, it's your, my background in journalism makes me feel like I failed somehow if someone doesn't keep reading.

So I don't blame him for not finishing. But maybe as I said, it wasn't the right format for him to learn. Or as I said, a lot of the net more negative feedback I got from people was that it all sounded so obvious. But sometimes making something hard sound simple, I think it's an interesting challenge. And I think a lot harder than making something easy sound complicated. Yeah. Yeah.

And certainly there's a ton of, you know, red meat, as they say, or if you're vegan, you know, red tofu for people that want to sink their teeth. to aspects that are quantitative. You give a thorough explanation of all the Greek symbols and the Black Shoals equation, and you do so in a comprehensive manner, but it's entertaining, and with examples ranging from, you know, how early or late a route should you take to get to the airport, for example, which is one of the places I want to start. So I want to get your opinion on a couple of canards or things that I've heard in my career, and then we'll get into risk management. We'll touch upon GameStop and the stock market and Bitcoin,

and then we'll talk about risk management in other aspects of life, ranging from family formation to other things. We'll stay away from the brothel. We're not going to go there, except to say that I believe it's true that the Mustang Bunny Ranch, another brothel, was forfeited to the federal government after convictions for tax fraud by the owners in the late 90s. Oh, really?

Yeah. And then it was... Oh, that's right. Yeah. And then it was auctioned off, and the government took a receivership. and then it went out of business. So in other words, it was very successful.

This is the apocryphal perhaps story. But anyway, I just wanted to point that out. So here's a saying that one of my very well-traveled, well-heeled friends tells me, he said to me, if you're not missing one out of every 10 flights that you go to take, you're wasting too much time in the airport. How do you react to that recommendation? Well, I definitely don't list that many flights. I mean, I think it depends on how important that trip is to you.

I mean, again, I do talk about how much time do you need to get to the airport because you know, you shouldn't spend two hours waiting for your flight. But I think missing one out of ten is also a little bit much too. It depends how comfortable you are with missing or how good your relationship is with the airline. I think that's the question is how well insured are you? Because if you don't have a good relationship with the airline, maybe you just don't go on your trip and that's kind of awful, particularly if it's like a vacation, a family vacation. But I mean, if you're, you know,

have diamond status at your airline, they'll probably get you on another plane. So I think what's the right maniflates to miss? Probably depends on how well, I'm sure you are, which probably depends on how much you've invested in your airline relationships. So, you know, considering whether or not there is a single strategy to reduce risk or not, in some cases it seems like there is a clear, and maybe there's only one strategy. I mean, there's an old joke, not that funny, that goes something like this. You don't need a parachute to skydive. You just need a parachute if you want to go skydiving a second time. And we actually have, you know, we don't need to actually test that scientifically in terms of physics of gravitational force fields. But so there it's clear what the strategy for risk mitigation is. But how does one go about choosing between the different types of strategies that you outline,

ranging from insurance to optionality to hedging to, you know, kind of diminution of profit, etc. What kind of, on a daily basis, you know, we're not confronted with whether, you know, going skydiving and not using a parachute, but we are confronted with situations like car insurance or health insurance. I had on Patrick Bette David is a famous proprietor of a very popular YouTube channel, but also deals with insurance sales. and I said to him, you know, it's like insurance is unusual because the insurance company, you know, you're betting you're going to die and they're betting you're going to live and you're taking all these various. But so first, let's go back and say, what is the origin of the word risk itself? Where does it come from? Where does the concept of quantitative risk come from?

Quantification. Well, there's a contentious question, but as far as I know, it's based on Peter Bernstein's book, it means to dare. I mean, and for a long time, it meant, I guess, the regional origins were, it was a Greek shipping term, and it meant something dangerous. And still, when we talk about risk, risky, that usually means something bad. But later, I think around the Middle Ages or early Renaissance, it changed this meeting, which was like this sort of Middle English to dare, or German, I can't remember. It's been a while since I've been a book interview. And sorry, so, but it are, or when around, like, so Peter Bernstein's wonderful book, is all about how in the late middle ages, early Renaissance,

how risk became something that could be measured and controlled rather than just left to fate. And that's when the meaning also changed to include the upsides of risk. And this idea that you had some control over the risks you took really also changed its meaning to a lot of people. Although it is telling that usually when we say risky, we're referring to the bad things that could happen and not the good. So one of the examples you give in the book, aside from the, you know, getting to the airport and your travel and your commute, involves essentially, you know, portfolio insurance and and other sorts of concepts that people have used for many years. And you point out that the originator of the theory behind how options should be priced, black shoals equation, that they later went on to become advisors to long-term capital management, which it was, you know,

now it's funny, you know, we can think about epochs in terms of how many financial crises ago was that? So now this is like two or three ago in the early 2000s or late 90s when they basically, it's funny now because the amount I believe of their notional shortfall that the government bailed them out was like $20 billion. Not a small amount, but I think today even GameStop or whatever is many, many times that market cap. We'll talk about that. But I want to ask, you know, how is it that people that are so astute at, you know, judging risk, actually pricing risk, winning the Nobel Prize for risk quantification, how do they still fall victim to sort of the most basic perils of risk management? I think it's a complicated story. I mean, first of all,

long-term capital management was never bailed out by the government. They're like kind of similar to the GameStop hedge funds. They were bailed out by other hedge, by other private players in the financial markets, which is, I think, an important difference when you don't have tax there of money at stake. And also, I mean, obviously, I think one reason why LTCM required, the government did organize the bailout. So, I mean, there's that. And the reason why that was necessary is there was fixed income involved.

And kind of like the financial crisis, you know, you're a lot more likely to have a financial crisis when debts involved rather in equity. Like, that's why, you know, there are a lot of issues with GameStop, which we can discuss. But sort of systemic risk isn't really something that worries me so much. I guess it's possible, but it's a lot harder to have systemic risk when you're playing around with equities compared to debt. That said, even if you're super smart, I mean, you can underestimate risk. We have these very powerful tools to reduce risk. You know, I think behind LTCM, there's a lot of, you know, according to Milo and Steam book, you know, the people in charge stop listening to the smart people in the room and started taking on more and more risk because they wanted to get more and more money.

But I think at the core, there were more fundamental issues, certainly around leverage. Whenever you take leverage, you're going to magnify your gains or your losses. And, you know, you can have this off-distribution shock happen, like in that case, you know, with Russia. And, you know, all of a sudden your models don't work. And I think that's always a possibility. And that's why, no matter how smart you are or how many smart people you're talking to, you have to always, as I said, be prepared for loss and for things that you don't anticipate. I like to think now after a year in which everyone sort of feels like they had an off distribution risk that, you know, we can all be more mindful of that. Yeah.

So, yeah, famously a great, you know, proprietor of all things, analytic, ranging from the conception of the law of universal gravitation to the laws of behind calculus, which is used, of course, in all sorts of financial and risk management accounting practices. He said, this is Isaac Newton, who participated in the law. the South Sea bubble, which is a trading company, monopoly, trading company that went completely belly up back in the 1720s, he said, because he fell victim to it, he said, I could calculate the motions of the heavenly stars, but not the madness of men. And I think it's pretty telling that, you know, the more that we think that we have a handle on the future based on some modeling that we have reason to believe might be correct, but no data, obviously, because it's forward-looking and future-looking.

And as the great philosopher of science, Yogi Berra said, it's difficult to make predictions, especially about the future. And so we have no idea whether or not our models will be borne out in practice. But I wanted to talk now about a personal issue, which involves the type of astronomy that I do, which is in collaboration with colleagues literally in all seven continents, and that's to build a new observatory. In this case, the Simons Observatory named after Jim Simons, a hedge fund pioneer. You might have heard of him. And there, of course, I have a video with Jim Simons, and he explains the difference between Alpha and Beta and other Greek symbols that you talk about too. But in this

campaign, what we're trying to do is build the world's most ambitious cosmic telescope located in an altitude of 17,200 feet in the north of Chile, the country of Chile in the Southern Hemisphere. So, you know, for five years now, we've been building this instrument. We've had to build a construction plant. We have had to build a concrete mixing factory. We have to bring our own diesel fuel and generators and all sorts of things. They have nothing to do with astronomy. But if you don't account for them, you will not be able to construct the observatory. It runs on power and it sits on concrete. And around the world with vendors and suppliers, this is a $100 million project. And we have so-called risk registers, where we go.

over the likelihood of a given event, the consequences if it comes true, the impact financially if it comes true, and mitigations if it comes true. So we had very extensive risk registers across the 10 major subsections of this new ambitious observatory. And we started this years ago, and not one, even though we're some of the smartest people in the world, my colleagues, at least not calling myself in their august company. But I get to play with them, so it's fun. Anyway, not one of our risks was COVID-19 pandemic will completely eliminate the possibility of travel to Chile, of vendor supply disruptions, of graduate students quitting, of families being disrupted. Why is it a valuable thing to look at risk with analytical continuous calculus and models when the most significant risks are these black swans, as your field co-member Telebs calls these black swan events? seem to be much more dramatic an impact than something you can put a standard deviation attached to.

So what was your feeling about that, the difference between catastrophic or, you know, tail risks that really don't lend themselves to probability predictions? Well, I mean, they work 90% of the time, and that's not nothing, right? I mean, you know, it's good to plan. I mean, I think my last chapter is about the risks you can't anticipate. and you know I spoke to HR McMaster because the military suffers with us too they want to plan everything but nothing in battle goes down as you expect it will

but that doesn't mean it's not worth planning I mean first of all you know it does work most of the time I think the quick the trick is you've got to be humble about your plans you got to leave some room you can't make your plans too rigid you've got to leave an ability to pivot your plans

because I mean there's also something to the process that prepares you for things like a pandemic that like you going through all these steps and thinking through of all these contingencies probably still left you better prepared than when the pandemic happened than if you just you know kind of winged it i mean because it does help you sort of again have things on the ground have more contacts uh all these sorts of things you probably you said research suppliers that you could get locally you know all these things it's very helpful that it helps you be better prepared because the thing is that you really need to prepare yourself for the black swan event is to go in

well informed. And, you know, you're not going to know everything in advance because the world is so unpredictable. But the more informed you are for a sort of uncertain event, the better off you're going to be. So, famous Stanford psychologist Carol Dweck put together some insights in a book called Minds, where she talks about these different objective, you know, kind of descriptions of the human mind, which basically she claims cleave until one of two forms, you know, fixed versus growth mindset, where one is really looking to quantify as much as possible to maybe perhaps appear smart. And the belief is that, say, intelligence or even forecasting ability is fixed. And the other one is kind of learning-based, curiosity-based, and wants to, you know,

lend itself to a tendency to learn, which by necessity, as you point out, all good things require some risk. And even some bad things. War requires, you know, is a bad thing. It's awful that we have to have war on occasion. But you need to take risks in order to succeed. So when you, you know, have this assumption, are there people that believe that they're inherently good at assessing risk? And do you believe that someone can be, you know, people say, oh, you're a mathematical genius, because I'm a physicist. I say that's not the case. But can someone be a risk genius? I think good risk geniuses know what they don't know, I think, to that. And speaking of that, and they're comfortable with the limits of their knowledge.

You know, I think that's what sets apart good risk takers from bad risk takers. As I said, it's like, I mean, I find it very seductive myself. Like, I like modeling risk. I have to admit this whole last year, which has posed so much uncertainty to everyone, I find risk modeling and staring at data gives me a lot of comfort because it helps me put numbers on things. Like, over the summer, I met up with some friends. I live in New York, so everything shut down.

still, but we're allowed to eat outside. Anyway, there's blizzards going on. Yes, exactly. It's amazing. It was amazing. I was walking outside. I met a friend for dinner last night. It was 25 degrees, and we had to wait. All the restaurants are, or the outdoor little structure,

they have these little rickety structures built in the streets right now. Everyone eats, and they're full. I mean, we're a hearty people more than I would have expected. But, oh, yeah. So over the summer, I was having dinner with two friends when it was summer. So it was actually a pleasant thing to eat outside. And my friends were like, you know, it's crazy we're doing this. We're really just playing Russian roulette with our lives.

And I was like, you know, I don't know about that. I mean, you've been biked in city traffic to get here. I mean, that's something in a million years I would never ever do. But like I'm comfortable eating outdoors with friends during our pandemic. I mean, it's like I feel like looking at the data, that seems a lot less risky to me. Yeah. So I think I'm generally like have survived as being a lot less fearful because, you know, I spend a lot of time looking at data. And that is my happy place.

But also because I kind of went into this kind of also accepting that, you know, shit happens and things you can't predict and things you can't control. And you can take steps to minimize and mitigate your risk, but it's not going to ever go away. And I think that that knowledge has really made me, I don't know, serve me well. I don't know if anyone's handled this great. But like has at least relieved me of anxiety that other people have. Yeah, it's funny that you mentioned the COVID kind of differential risk management or willingness that people are taking on. Oftentimes my wife will text me, you know, as I'm driving the kids home from school, did you pick up the kids? And I'm like answering that question or she'll ask you, she'll text me like, did you put hand sanitizer on their hands?

and I'll say, you know, me answering that question is so much more dangerous as I'm driving than any risk of them contracting and succumbing to some side effect of COVID. The other thing I see often on this campus at UC San Diego are, you know, students biking and tearing around on their skateboards. You know, we have the coolest students in the world. And they're on their skateboards and they're on their phone and they've got their mask on and they don't wear a helmet. And I'm like, this is nuts.

Like, you know, you're so much more, you know, prone to getting, you know, I'm not saying don't wear a mask, but like the fact that they, you know, kind of assign a risk probability of COVID is so much harsher. And this goes off campus too. It's not. But anyway, those are just some fun things that I've observed that the kind of disproportionate notion of risk. As you point out, like a plane crash, you know, claims a thousand, you know, claims, you know, 20 lives. That'll make headlines. But, you know, every day, a thousand people die in car accidents, right? Or, you know, you know, Yeah, like we've gotten very fixated. It's easy to get fixated on the risk that's in front of you. And I think for a lot of people, COVID risk is what they obsess about, to the detriment of thinking about risks we've actually lived with this whole time. And in fact, other risky behaviors that this might be encouraging in us, you know, just because you're managing COVID's risk well doesn't mean you're not managing other risks that well. Yeah, that's actually fascinating.

I was listening to a podcast by another author who's like a Navy SEAL. And he was talking about how we have this kind of, I translated, it into like a co-processor in our brain. Our brain is getting right now, you know, 13 million bits of information. And we're just focusing right now. We're focusing on the podcast. We're focusing on our conversation. But, you know, you only can store in your prefrontal concentration cortex co-processor about 3,000 bits of information every second, which is a lot, but actually much less than an image or something like that. So we think we're good at multitasking. We think we're good at risk analysis. But you're right. It's the thing that's right in

front of you that actually can overwhelm. You know, the key to this, the guy said is like, you know, if you get into a car accident, you're driving and listening to this pot, and I was, I was like, this guy watching me, like, are the Navy SEALs like everywhere I want to be? But the Navy SEAL guy was saying, you know, basically you, you know, you're listening to this while you're driving because you've offloaded your conscious decisions about driving to, you know, experience, to past history of driving. But if you get into a car accident, I guarantee you, you're going to have to rewind the previous 30 seconds of this conversation. You're not going to be, Oh, multitasking, crashing, sharing information.

But speaking of the military, let's go there because you point out, you know, a good part of the book and one of the encomia on the book, well deserve, richly deserved, is about the military. And I was thinking, and from H.R. McMaster, who's a phenomenal intellectual, as you point out, he's kind of like this, you know, business school professor mixed with, you know, this warrior kind of personality, very interesting human being. But it came to me as I'm reading your book that the fact that people don't apprise risk but actually have an outsized impression of how good they are at apprising risk could be used for some sort of, you know, social arbitrage. And of course I would never do that. But people do that in poker all the time. They do that, you know, that, you know, kind of people going on tilt. And you talk about Phil Helmuth and your studies of him. Very fascinating example. But in warfare, it was a lot of, you know, would seem like, you know, all is fair in love and war. We'll get to love later. But in war, do you believe, do people take advantage of the fact that the enemy might not be as good at a prising risk, not only as they are, but as they think they are? This episode is brought to you by Netflix. Most valuable promotions in Netflix are hosting

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6 p.m. Pacific Time. Yeah, and I think the story of HR told me, you know, we usually think about things when, you know, tale events not going our way. I spoke to him about the Battle of 76th Easting. I said, and how else they've done a book interview. And how, you know, in that first Iraq war, that first war, like, it went so much easier

than we thought it would. I mean, because the enemy just was weaker than they expected. Sometimes it's stronger. Sometimes it's weaker. But when we went back to Iraq, it turns out they were a lot stronger than we anticipated. And that's his point. It's just that you can model things to death. But once you have people involved, things are always going to be uncertain.

Because it said, you don't know how that person's risk modeling. operates. You don't know what things are important to them. As I said, people can get fixated on one risk, the detriment of other risks. They might care to fight for something stronger than you will. And all these things are always unpredictable. How can risk be taken advantage of, you know, aside from being venal and having all these negative aspects that I have, I started to think about academia and academic risk. And you go through in your book, you know, that one of your risks was to, you know, whether or not you go to graduate school and work with this eventual Nobel Prize winner, Robert Merton, gives another glowing endorsement.

But what was that choice like? And I find academia is very interesting because there's a huge amount of risk for certain tracks in academia. And there's almost no risk in other forms. In other words, if I want to become a professor, it's almost as hard being a professor of astrophysics and cosmology as I am as, you know, making it into the NBA or something like that. Or let's just say it's professional major league baseball, which a lot of economists like baseball. So I'm going to assume you do too. But it's very easy.

It's extremely easy to become what's called a postdoc, which I'm not saying they're not good, but there's so much more of a market for, you know, people on the seller side or for people to become postdoc. So it would be as if it was incredibly... Do you postdocs generally get professorships? Well, that's the... point I'm trying to make. So it would be like as if it was very easy to get into AAA baseball. Imagine if it was like, it was a piece of kick. Even Brian Keating can get into AAA baseball,

anybody, but then it's impossible to get into Major League Baseball. But it's actually very hard to get into AAA baseball. In other words, there's a gradient. You know, it's harder to get into ML to the major leagues than into AAA, but it's almost impossible to get into AAA. What I'm saying is in academia, it's as hard to get a position in academia as MLB, but it's the next stage below it is sort of as easy as, you know, getting a high school team in a town that only has eight kids. Do most postdocs go on to academia or do they do something else? No. I don't think it's, at least in my field, many of them have gone on to academia, but at least a third have gone on to non-academic positions or, you know, non-academic, but still

research in a national laboratory, NASA, something like that, but cutting off the academic professoriate track. Yeah, and I imagine with the quantitative and programming skills, there's a lot they can do. Yeah. Yeah, a lot of them go into finance. Jim Simons would only hire mathematicians, physicists, astronomers for a long time. He has told many people in his biography, etc., that you know, he wanted only people that were good at that. And it turned out that even some of my friends who were professors of astronomy left their tenured faculty position, which is the most coveted thing you can get, perhaps in all of society, to become.

hedge fund traders. So anyway, yeah, it seems strange that there is this kind of risk inversion, you know, where you, what was the process like for you? When you had to make this decision, you know, of where you were going to go and what direction your career would take, was it grading on you? And I'll ask you later, advice to your former self, but what would you say sort of to a younger version of Allison contemplating that very risky decision that you made? Well, in retrospect, I made an insane risk decision. At the time, you know, So much like, you know, year field, economics, it's not really that bigger risk. I mean, I think doing a PhD in like French literature is a lot riskier.

You know, it's like seven years. That was my minor. That was my minor. Yeah. Yeah, but the job market is even worse. I mean, first of all, like, I believe anyone who has a PhD really has a lot of original critical thinking skills that should translate into a lot of jobs. But it's hard to convince people in the job market who have a job. through the process that's true.

If you have a quantitative PhD, people are more inclined to see you as skilled. But, you know, there's even fewer jobs for French literature professors. So I think if you're doing a quantitative PhD, it's really never that risky. I mean, you probably could do something that's shorter and easier and you'd make the same amount of money

in the end and probably have a more certain career path. But, I mean, if you really have this intellectual need to do this degree, then And I don't think it's a risky endeavor. And that was definitely true for me, probably for you too. Economics was something I really had this need to take all the way. You know, I always knew this was something I was going to pursue to that level. I think from the first economics class I took as a high school student, I just knew I had to go all the way with this.

So I had that intellectual drive. The problem was I kind of went into it without really a plan. Unlike your field in economics, you know, if you want to work as a professor on a tenure track job, you're probably going to find something somewhere. Economists are super rational, and there's a lot of jobs outside of academia. So most people are quite happy to go to government, to go into industry. So it's a pretty fluid market where people want to go into academia do and those who don't do, and, you know, no shame on that. Oh, there's shame on that. But like, if you do it, you don't, you don't care. But I kind of really got wrapped up with my research in grad school, but never really

thought about being a professor until I became, went on the job market and I was just like, every interview, I'm like, I desperately do not want to be here. And I cannot imagine doing this with my life. I mean, it's wonderful. It said, I'm super lucky. He said, a French literature, PhD would have killed for that sort of opportunity.

But I just realized it wasn't for me. And so I did something really insane, which was I managed to will myself to graduate without a job, which was very unusual and considered a great shame in my department. and brought great shame upon my committee, as I was told many times.

And I ended up, like, writing an economics blog for the economists. And this was, like, 2006. So, I mean, this was really, like, kind of low level and kind of embarrassing. But I just kind of wanted to start something fresh. I don't know. A PhD is super hard. You, you know, it was just a whole, I mean, I enjoyed it intellectually, but personally it's a very difficult process.

So I just wanted to do something completely different. So that's, I guess, was the start of my writing career, which ended up, as I said, anyway, going into journalism with a quantitative PhD as a questionable choice. It did teach me how to write, which is a very valuable skill, especially paired with a quantitative skill set. So in the end, it did work out. And I said I was only at the economist for a couple months before I met Martin. And he took me under his wing and taught me finance. So that turned out to be a good thing, too. I think that's the thing you learn in this whole process is if you have a good education, particularly if you have a quantitative

PhD, you're never really going to be in trouble. Right. You know, I think I wouldn't recommend a lot of people take the sort of risks I did, but having the sort of level of degree I had was a great insurance policy, because, you know, you're always kind of kind of be employable and have the skills to get you, to get you what you need. Yeah. My advice for, you know, people that want to go into academia is different from those that

want to pursue a PhD. And that's, you know, you should go into academia if and only if, and it's sort of the advice I'd give to someone writing a book. If there's no other option. In other words, if you don't do it, you will be forever miserable. And if there's no one else who could do what you're going to do in your book or in your research or even have the passion that you have, if not the mathematical ability or whatsoever. So only do it.

But the fallback is, yes, as you say, not only will we pay you in graduate school to get your PhD. Not great. You know, it's minimum wage-ish currently. We can talk about minimum wage impacts some other time. But I imagine you have very many strong opinions and facts about it. But nevertheless, as you say, there's base, I have zero, thank God or whoever, zero unemployment amongst the 17 plus students that I've had graduate with PhDs in my laboratory. So I'm very proud of that.

That's probably my proudest accomplishment is that I always say to them, my job is to get you your next job. What you do after that, that's on you. In other words, I'll get you to the next point. I'll get you prepared. whatever you tell me, but you have to tell me every year we have a meeting. I say, are you still on track to do goal X

from last year, goal Y, and Z? And if it changes, that's totally cool. The facts change, I changed my mind as a famous economist once said, right? I want to talk about... Well, that's... You sound like a good advisor. That's my students. I mean, what makes a PhD so terrible

is also what makes it so valuable is that you're in your 20s and someone says, come up with an original idea. and most original ideas are either wrong, derivative, or trivial. And I think having someone point out that your ideas are wrong, trivial, or derivative actually hurts a lot, but is actually useful in life. Yeah. Yeah, I think the notion that everybody's above average, you know, that goes to UCSD or some other place, yeah, it's, you know, ultimately not as helpful as you could. I want to get back to this topic. Let me just take a quick break to mention my. guest today is none other than an incomparable writer whose work I love tremendously. And I think

this is your first and only book so far, right, Allison? Yep. Allison Schrager is our guest today. Author of An Economist walks into a brothel and other unexpected places to understand risk, which I do come away with a fantastic understanding of in a way that I didn't really appreciate from disparate examples ranging from poker to getting to the airport, to skydite, or to big wave surfing, and many other things just tickles me and is a delightful book. It has a 4.6 star rating, 216 ratings on Amazon.

And I want to get into Amazon. I want to get into kind of the marketplace of books and so forth. What did you learn about, like, the publishing industry, the economics thereof, and their risk management? You already mentioned a few things, which I agree with completely, that they won't let you touch the cover, you think as an author, oh, I'm going to make this, you know, amazing cover. And they're like, no, we're not, because they know that people judge books by their covers, which is what I, you know, joke about at the beginning of the podcast.

But what did you learn, of anything about the unexpected risk management techniques of modern day publishing? So I have a chapter about the movie industry and how, you know, most movies lose money, but you have these unicorns. It's like you see investing that pay off for everyone. To some degree, that's the publishing industry. I think that describes fiction more than nonfiction. Nonfiction has a less skewed distribution, but still somewhat skewed. And like, you know, I'm working on my second book proposal now.

And it's amazing to me that every, I'm sure you heard this too, is every time you're writing a book, I'm just like, oh, I've always dreamed of writing a book. Yeah. And it seems so weird to me because, I mean, I love writing books. I'm so lucky that I get to do that. But it is really, I think, the way you have to approach it with a publisher. certainly in the nonfiction world. I don't understand how fiction works at all, so I can't comment on it.

I feel like I have a business idea, and I have to convince a publisher to effectively invest in it. You know, it's here's this idea I have, here's how I'm going to execute it, here's my marketing plan, here's how I can sell it, here's a product that people are actually going to buy. And with nonfiction,

isn't you just going to write your proposal and you sell it that way? And it really feels less like, a creative literary exercise and more like someone convincing someone to invest in your business idea. Yeah, so another risky thing that people take on quite frequently is as a enter into a very potentially high level of risk contract in some sense, social contract, financial contract, and that's called marriage.

And in fact, you know, the only issue I take with the book is, is that you say that marrying young is a risk, which, you know, it can be a risk, but the question is, are the risks offset by the rewards? I mean, everything that derives from marriage, including, you know, potentially children, you know, is fraught with risk, right? You never know. Children are like the box of chocolates in Forrest Gump. You know, you never know what you're going to get. So it's true. And you never know.

People change. And if you marry younger, the probability for someone to change is, I always say people do change. The phrase is people don't change, but people do change for the worse. But what do you say to someone like me who says that there's great benefits also to getting married young and having children young because you have a greater amount of memory dividend to kind of draw from? I had Bill Perkins, author of Die with Zero on the podcast at the end of last year. And his whole point is that memories compound in that the same way financial interest compounds, The greatest invention of the human mind, according to this guy, Albert Einstein, is the notion that interest compounds kind of while you sleep.

And his point is memories compound too. So just like the hockey stick curve of exponential growth really turns up the heat towards the end, that behooves you to start early. So what is the basis of the claim that it's risky? Maybe you don't think it's too risky, but why is it such a big risk to get married when you're young? well there's good risk and there's bad risk and any risk you take has upside and downside right if you end up marrying the right person young you have this life partner and you get to grow with them and you have children with and that's amazing right like i imagine there's few i i'm not married so i imagine there's few things you know more like wonderful than that as i said it's like having truly a life partner who you grow with of course the downside risk is you grow in different directions and you're unhappy um so as i said it's a risk but they're up sides and downsides. I think it's all good if you marry the right person. And I think there is an effective risk management tool in marriage, which is used by about 50% of all the people who get married. And that's called divorce. It's one thing if there was no possibility to get out. We joke in academia that, you know, marriage is less risky than granting someone tenure. Because, you know, if we grant someone tenure with her or him for the rest of our lives, and actually some of us see our work colleagues more often.

and then we see our home family. So, yeah, the only thing I would say is that, yeah, that if you, as you say with investment, you know, it's not always clear that getting started young is the best track because you could expose yourself to great losses. But usually people have less at stake. And when you get married young, you don't have this huge portfolio that would get divided in half, at least in the state of California. Yeah, so I'm working on my new book now, which is all about exploring why we're hesitant to take risks.

And I've been delving into, I've been talking a lot to the anthropologist Helen Fisher about risk and relationships and people taking risks in relationships. And she's noticed that, I mean, I think my general book thesis is that people are becoming more and more risk averse. And she's like, she sees that a lot in relationships. She's like, she's the, she's scientists at Match.com. And it said, and anthropologist who studies love that people are getting later, prenups are a lot more common, that people really need to feel like they've known someone much longer. And generally, we are taking fewer risks in marriage. And getting married very young is becoming less and less common. Yes, that does seem to be the case.

And especially with children, you know, I've learned, you know, having children is, as I said, fraught with risk. Obviously, there's physical, financial, et cetera. But, you know, there's also one of my colleagues, a Russian fellow who said something in a traditional Russian way, which is, you know, that you need, there's only one condition for me to have a kid. You have to take the kids skiing. I was like, what the heck does that mean? And he was like, because to go skiing, you need to have enough financial mobility. You need to have enough free time, leisure. You need to be healthy enough.

You need to have a child. You need to potentially get married to have a child, though obviously many people don't, and that's fine. But yes, they're kind of criterion and why people have children. But never do so many people get into something that's so risky as marriage and the commitment with less attention paid to it than even their IRA or, you know, a vacation that they're going to take. We have a bunch of friends that are happily getting married in the near future. And, you know, it's like their plans change on a whim.

And it's not even clear that, you know, we need these huge weddings. And now that COVID is showing, you know, kind of the links that people go to to get married or avoid marriage, I think it's permanently changed. And that was kind of leading me to your next. My next question for you is, if you wrote the book again, you know, knowing what's happened with COVID, would you change anything or would you amplify certain messages or would you point specific people such as the person who shall not be named who gave you this low star review that didn't finish the book? What are some of the ways that you might reevaluate or amplify the claims and the arguments you make in the book? Well, I don't think I really would change that much. I mean, if I wrote it now, I would be able to travel. meet all those people. I guess that would be different. But I think for me it really sort of

hammered home the message. For the Greek version, I actually did write a new intro for it in honor of COVID. I can't remember what I wrote because it was like in June. And you know, time has lost all meaning. But I, you know, I think it's like these lessons are more powerful than ever. I mean, we live in a world where we crave so much certainty, but the world's never going to give us that. but we have tools to make us feel more comfortable, to make sense of things, to accept that the world is, like, risk modeling to me, as I said, is trying to make sense of uncertainty. It's trying to put parameters around it. It's using the math that we're all so comfortable with to make us feel more comfortable, but ultimately, as I said, all these things happen you never anticipate. But I think if you're well trained as a risk scientist, you anticipate that. You know how to adapt your models as things come up. And you understand, most importantly, how limited your models are. And it's really just a framework to make things. It's just a framework to make sense of things. Yes, it does seem like, you know, having a plan, as they say in chess is better than no plan. Even a bad plan beats no plan. And then, of course, the philosopher of science, Mike Tyson,

said, you know, everybody has a plan until they get punched in the face, which seems, you know, provocatively risky, in my opinion. What do you make about, since you are an economist, I want to want to ask you about things like Bitcoin and so forth in Robin Hood. Are these effective ways, in your opinion, to mitigate risk? Actually, first, Bitcoin. What are your take on? What's your take on that? I had Michael Saylor on recently, and he's really extolling the virtues of it as kind of thermonadamically and scientifically sound money. But as a risk against inflation, it seems like it's lost its purpose as a currency, because you basically can't get a Bitcoin, I mean, you know, can't make change of a Bitcoin or some Satoshi's.

But so it's lost that motivation. And even he doesn't extol that particular virtue, but instead is a hedge against inflation. So what is your opinion as a professional economist? Well, I think for both that and say day trading on Robin Hood, I mean, you're just adding risk to your portfolio. I mean, that's what you're doing with both of these. I mean, I don't see Bitcoin in any way as a risk hedge. I mean, I guess, like, part of the argument is, is if the U.S. government,

collapses, then, you know, you'll have your Bitcoin if dollars don't exist. But I feel like in that scenario, why would you have access to computers either? That, you know, it seems like the whole world falls apart. I'm not quite sure why Bitcoin would still be standing. I guess that's a catastrophic Black Swan risk, but just the ordinary risk, he says the inflation, the real rate of inflation for those of us who want to buy houses, you know, in a desirable city, or want to buy, you know, a car, something collectible, or even, you know, some things besides oil have been going up at about 10 to 15% in real inflation, you know, adjusted terms, I mean, are not adjusted terms in real terms. And so his point is that, you know, that's a known known in Rumsfelds.

Yeah, but there's a lot of currency risk on Bitcoin, though. I mean, it's not a good hedge for anything. As I said, it just, it's like, it's like people who buy gold to hedge the dollar. It's like, it's a lot more volatile than even owning the S&P 500. So, I mean, you're taking on something insanely risky to hedge a fairly small risk. risk. I've never, I don't own any Bitcoin. My closest experience with it when I was doing a story on the dark web. Because I spoke to a lot of internet drug dealers on Reddit about their experience with Bitcoin, and they hated using it. Because, you know, when they make a transaction on the dark web, the money sits in escrow until the drugs arrive and the person uses it. And they're like, all right, this is what I paid for.

So in two weeks of your money sitting in escrow, the currency risk would completely wipe out their profits. So it's really like, it seems to me that Bitcoin has an incredibly high beta. So it's just like a way of amplifying market risk. So, you know, people want it. I mean, with risk, there is reward. And I think the same is true of day trading. You know, the whole discussion around GameStop has made me realize just how much people have lost sight of what investing means, which is, you know, you buy an individual security really because of what it does to your risk portfolio. Ideally, you want something that's not correlated with your other assets, so it reduces risk. At the same time, you can earn more than holding cash. Maybe you decide you want to take more. risk so you add more risk to your portfolio. But everyone's talking about investing as if it's all

about just picking these individual stocks that are winners, which is hard and impossible. You can never do that consistently unless you're Jim Simons and, you know, there's not many of him. There's like him in Warren Buffett and that's pretty much it. So odds are you're not one of them. And you are going up against them and they've got a lot more money than you do. And, you know, having deep pockets or access to a lot of capital certainly helps when you're investing. So it's bizarre to me that everyone's now fighting for the little guy to day trade. Like, this should not be the goal. You know, there's a lot of good ways to invest. And I, you know, people want to sort of play around with Bitcoin and, you know, day trade stocks. It's not something I would do, but like, I wish them well. But I think they should

understand that they should only do that with money. They're prepared to lose. Yeah. Well, I mean, here's a sailor's, you know, a steelman of the Bitcoin position, which is that, you know, over any five-year period of time, Bitcoin has gone up. And since its invention in 2010 has gone up by effectively over 100% a year. But that's a very, very short history. I mean, this is something that makes me crazy. So when I was at DFA and like really obsessing about how to model equity returns and bond returns, I was working a lot with Fama.

And, you know, the thing is about they've learned the hard way because they've been around for a lot longer is the way you predict and model asset prices is to use as much data as possible. In 10 years tells you nothing. That's not even a cycle. No, right. But people say things about, well, there were seashells that Isaac Newton invested in. There was, you know, baseball cards. You know, there are all sorts of things that don't have an actual return in terms of, you know, a long history of value.

And even things that do have a history, like large. stones and Easter Island, you know, carried a lot of value for thousands of years. And, you know, gold is, of course, you know, the quintessential store value. He points out that two or three percent, you know, because he's heard all the arguments that you're making, he points out, you know, every year people mine, you know, 2 percent of the stock of gold is added each year. And even Warren Buffett agrees with him. Warren Buffett doesn't think gold is a fantastic investment vehicle, you know, and even

in terms of store of value, it fluctuates to, it's not a good currency. I mean, try going down to the bodega on your corner in Manhattan and scraping off some gold flake and getting a coffee. I guarantee they won't accept it. You know, whereas Bitcoin, it has this kind of portability. It has, you know, this cryptographic mathematical foundation. It weighs nothing. You can take delivery of it instantaneously, unlike gold, unlike seashells and unlike, you know, famous works of art. And so what's fascinating to me is that actually on the dark web, people are not,

using it for the reason that you mentioned, but also because the ledger is publicly available. And so people feel like they don't conduct the same kind of illicit transit. It's gone down from 10% to 1%. And then Sayler will say to me and to you, he'll say, well, how much illegal activity is the U.S. dollar used for? You know, it's just like... Yeah. Well, no, I only bring it up, not because people use it illegally, but just because it's

a very hard currency to work with. When something has so much value, I mean, you could argue the U.S. dollar is not really truly Fiat because it is best. backed by goods and services of the U.S. economy. So, I mean, yeah, sometimes tulip bulbs or she shells get worth a lot, but you never know when they're going to stop being worth something, right? So because they do have no intrinsic value. And that's the thing.

10 years of data tells you almost nothing. It doesn't tell you whether or not they're still going to be Bitcoin in 10 or 15 years. Maybe, maybe not. 100 years, 200 years? Who knows? So, I mean, and that's the thing about investing. It's not about picking the right stock that goes up for a week. It's about being able to consistently make money and market.

over time. And it said very, very few people are able to do that. Yeah. Because you have to know when to get out. And that's just very, very hard. Yeah. Absolutely. Okay, great. Allison, this has been so much fun. I wonder if we are now going to be willing to go into the impossible, where I ask you questions I ask all of my guests on the Into the Impossible podcast. These are things, kind of big picture, futuristic things and past advice that you might give to your former self. So if it's okay with you, we'll switch into that mode and wrap up the podcast. Okay. The first question is an easy question, and that is whether or not in a hyperbolic calculus fashion,

if you can unite the form of gravity with the force field of quantum mechanics, is that? Can we do that? No, just kidding. All right. The first question is what you would put in your ethical will. So you're a mentor and friend, Tom, uh, Merton. Is it Thomas Merton or Robert? I just, Robert.

Robert. He, uh, he won this medallion here that was endowed by Alfred Nobel, who knew a thing or two about risk. He invented dynamite and he wanted it used for good things and bad things, uh, but knowing that it was used for bad things, he hedged his legacy by endowing the Nobel Prize as sort of a way to rehabilitate the way the world perceived him after being falsely attributed his death, his brother's death was falsely attributed to his. And so he endowed a will that not only was meant to reward financially and with a golden chunk of metal, but the scientists who had made

great discoveries in physics, chemistry, et cetera, later economics was added controversially, and the Nobel family does not like that. But anyway, that's a subject, and I discuss in my book, but not for now. Nevertheless, the other requirement is that the winners of the Nobel Prize must better mankind or humankind, as we say nowadays. So I want to ask you, and that's made it part of his ethical will, what wisdom and so forth he wanted to bestow. I want to ask you, when you reach the biblical age of 120 years old, what kind of advice, what kind of wisdom, what kind of values do you most want to communicate to your ideological errors? That's a heavy question.

I think it would be about seeking knowledge. As I said, in always being aware of what you don't know and being curious and interested in other people. Oh, very good. The next question that I ask my listener, or my guess, rather, is, relates to a scene in the movie 2001, a space odyssey. I don't know if you've ever seen that movie. Yeah. Well, there's a notion that there's a civilization that leaves this kind of opaque piece

of technology called a monolith for humanity to discover when it's capable of decoding the message they're in. So it's sort of a time capsule meant to last for billions of years. I actually had on Carl Sagan's widow, Andurion, who's a brilliant writer-producer, not a scientist. And I asked her the same question. I'm about to ask you, what would you put on a billion-year-long-lasting time capsule? And she said, oh, I did that. And I said, wow, that's pretty cool.

She said, yeah, I recorded my brainwaves and sent them into interstellar space on the Voyager 1 spacecraft, thanks to Carl Sagan. So I'm not expecting that you have that same, you know, kind of, access to technology like that. But I do want to ask you, in economics, in other aspects of life, what kind of sentence or item or, you know, belief system would you put on a time capsule for people, human beings to discover millions or maybe even billions of years from now should we last that long? Well, I guess that would be two books. It would be Peter Bernstein's book and maybe the wealth of nations. Because I think, you know, markets really are an amazing thing. and we really can get around how useful they are.

And we always want to try to do better. And we always think we can out in smart markets, but we never can. Very good. Okay, the last question, instead of going forwards in time, you know, 100 years or a billion years, now we're going to go backwards in time and explore one of Arthur C. Clark's famous laws. The first law is that any sufficiently advanced technology is indistinguishable from magic and actually open every podcast with those very words said in Sir Arthur C. Clark's actual voice. The second law you might appreciate is for every expert, there's an equal and opposite expert.

And the third law is the only way of discovering the limits of the possible is to venture a little way past them into the impossible. And that's the name of this podcast origin. I want to ask you for advice to your former self. What aspect of life seemed impossible to a 20-year-old version of Allison that now became possible because of the courage you had to go into the impossible? Advice to your former self. I would have never in a million years thought I'd get paid to do hard math problems or write. Two things I was never particularly good at. Wow.

So life. I guess I would just say if you work really hard. I think I overestimated when I was 20 how much natural ability mattered. I would have thought you need to be extremely talented at both these things, and I'm not, but no one will work harder. And that turned out to be important. Wow. Very, very nice. Okay, Allison, this has been a fascinating conversation for me.

I know my listenership around the world will appreciate this. I'll just sum up. Alison Schrager is an economist, a senior fellow at Manhattan Institute, contributing editor at City Journal, and a co-founder of Lifecycle Finance Partners, a risk advisory firm. Maybe I should have, you know, kind of gotten picture brains and gotten some free financial and risk analysis advice. Or maybe do you work with scientist, Allison? Maybe I can be her first scientific client.

Hey, whatever you're interested in, or we could talk about it. Awesome. Allison, I want to thank you so much. I want to wish you to stay warm. I know there's a huge snowstorm out there on the East Coast and stay safe, of course. You have to stay risk-free. No, no, we can't be risk-free. You taught me that.

Have a wonderful day, Allison. Thank you so much. Thank you. Thank you. Any sufficiently advanced technology is in distinction from magic. Hello, I'm Stuart Volko, producer of Into the Impossible. If you enjoyed this episode with Professor Brian Keating, please let us know by subscribing, commenting, sharing,

and most importantly, reading and leaving reviews. It really helps keep our universe expanding. We appreciate hearing from you, and read every review and comment. We're always open to your suggestions for future episodes. Watch our YouTube channel at Dr. Brian Keating, DR. Brian Keating. And join our premieres every Tuesday at 8 a.m. Pacific time for live chats. Follow Brian on Twitter, Medium, and support us on Patreon at Dr. Brian Keating.

That's DR. Brian Keating. For free access to exclusive content, please visit Professor Keating's website and sign up for his informative newsletter at Brian Keating.com. Into the Impossible is produced with the Arthur C. Clark Center for Human Imagination in the Division of Physical Sciences at the University of California, San Diego. Eric Viri, director, Brian Keating, co-director, Patrick Coleman, associate director, produced by Stuart Valco and Brian Keating. For more information on the Arthur C. Clark Center, go to imagination.ucsd.edu. Shalom is the perfect mantra to transcend. Not schmuck, shalom.

Okay. Now you heard it here. Nobody else can use that out there. It's only private, personal for Brian Keating. Any sufficiently advanced technology is indistinguishable from magic.