t force of a large chance of a small loss. People will
readily pay $5 for one chance in a hundred of making no more, perhaps,
than $400 or $450. And it is very likely that this holds good in the
world of business. If, for example, we were to suppose that the
promoters of a new enterprise were confronted with one chance in fifty
of a profit of 50 per cent per annum on their capital, as against
forty-nine chances of a profit of 5 per cent, this might well prove a
more attractive prospect than a certain return of 6 per cent, although
the strict _expectation_ of profit would be smaller in the former
case. But the risks of business enterprise are not often of this
type. They conform more usually to the opposite type of a large chance
of a relatively small gain, balanced by a small chance of serious loss
or entire failure. Now for almost everyone the possibility of a great
loss will count as a deterrent (just as the possibility of a great
gain may count as an attraction) for much more than its strict
actuarial value.

The truth of this proposition is demonstrated by the existence of
institutions more impressive than Monte Carlo--the Insurance
Companies, which play so large a part in the economic life of modern
times. Every year, and upon an ever-growing scale, both private
individuals and business concerns pay sums of money, which reach in
the aggregate a colossal sum, as premiums to insure themselves against
loss by Fire, Shipwreck, Burglary, Death, Death Duties, against every
risk which Insurance Companies will cover. Now Insurance Companies
are not, as we say, in business for their health. They find their
business profitable, and pay good dividends to their shareholders.
Moreover, they incur a considerable expenditure on offices, on
clerical staff, on agents, and the like. All these payments must be
defrayed out of the premiums they receive; so that it is plain that
the premiums greatly exceed the _expectation_ of the risks insured.
The odds are heavily in favor of the Insurance Company--of that the
stupidest person can have no shadow of doubt. Yet we continue to
insure, as private individuals and as business men, and so far from
being ashamed of our proceedings as a weak and nerveless folly, which
somehow we are unable to resist, we blazon them forth in the strong
accents of conscious pride. We preach insurance to our neighbors as
the core of self-regarding duty, and, if ever we feel a twinge of
uneasiness, it is lest we