An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk by Allison Schrager

An economist walks into a brothel. It may sound like the beginning of a joke, but it can also be a way to explain risk aversion.

In the latest book by economist Allison Schrager, “An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk,” she explores how economists use analogies to explain risky decisions. Through explorations in places like theme parks, space camps, tropical islands and — yes — a brothel, she uncovers how human behavior in these surprising places can help to understand the risk aversion that shapes our lives.

Schrager begins with an exploration of games theory, which is used to measure the risk associated with certain decisions. She explains how people act according to their perception of the risk associated with a decision. One example she uses to illustrate the concept is a carnival game. When someone is willing to pay the fee to play, they’re acknowledging they’re willing to take on a certain level of risk.

Schrager also digs into prisoner’s dilemma. This scenario is essentially a game of strategy between two people over a decision involving trade-offs to maximize their own returns. Through examples like these, Schrager shows how games theory applies to everyday life.

But rather than just explaining risk aversion in theory, Schrager takes an interesting approach by visiting unexpected places to illustrate her point. She checks out a theme park where an economist was asked to create an incentive-based program to encourage safe behavior, but the participants still ended up taking risks. She also visits a space camp that uses simulated space flights to help young people make good decisions in high-pressure situations. The results illustrate how the motivations that drive risk-taking behavior aren’t always rational.

Schrager also visits the most interesting location of her book, a brothel in Nevada. She discusses how the brothel operates similarly to a typical business, with market forces driving the pricing and availability of services. She explores how risk is managed in this particularly risky industry and how societal norms impact the decisions made.

By the end of her book, Schrager has unearthed how risk aversion is related to virtually every part of life — and the ways in which we make decisions can often be counterintuitive. As she states in the introduction, “the world of risk is filled with surprising insights.”

Through her exploration of unusual places, Schrager helps readers better understand risk aversion and how to make better decisions. An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk offers a unique and entertaining exploration of the concept of risk aversion that offers real-world applications to our everyday lives.