est on gilt-edged
securities. But what is likely to be the magnitude of this excess? Is
risk-taking rewarded if there is any such excess, however small? Or
will it suffice that the gains and losses should average out to a fair
rate of interest over the whole industry? To enable us to think
closely let us suppose for a moment that we can measure accurately
what the chances are.

Suppose, then, that there were a precisely equal chance of success on
the one hand and failure on the other in any enterprise, failure
involving a complete loss of all the capital invested. Suppose,
further, 6 per cent to be at the time a fair return on a perfectly
secure investment. What would be the return which must be expected
from the risky enterprise, in the event of its succeeding, before it
will be undertaken? The reader may be tempted to answer, 12 per cent.
But 12 per cent would not suffice. An equal chance of 12 per cent or
nothing, as compared with a certainty of 6 per cent, does not mean
that the risk in the former case is paid for to the tune of 6 per
cent. It means that it is not paid for at all. In each case what a
mathematician would call the _expectation_ is a return of 6 per
cent. The odds are evenly balanced; in the long run, over a large
number of cases, if the law of averages works as we assume it does,
you would get just as much from the one type of investment as the
other. Now, risky enterprises will not, as a rule, be undertaken on
terms like these; investors and business men will not take risks with
the odds precisely equal; they must have them, or believe that they
have them, in their favor.

Sec.3. _Monte Carlo and Insurance_. To assert this is not to ignore the
strength of the appeal which the gambling instinct makes to many, if
not to most of us. The taste for gambling is, indeed, so deep and
widespread that it would be foolish to leave it out of account in this
connection. It is clear enough that at places like Monte Carlo people
are prepared to have the odds unmistakably against them, apparently
for the sheer pleasure and exhilaration of taking risks. Moreover,
though for most people play at Monte Carlo represents a mere holiday
indulgence, it would be unsafe to assume that what appeals to them
there will not also appeal to them in their business affairs. But what
exactly is the secret of the charm of Monte Carlo? It is the great
attractive force of a small chance of a large gain, as compared with
the deterren