, too, may have omitted in some particular to
practice what we preach.

The significance of this is unmistakable. Be our psychology what it
may, however deep and irrepressible our taste for derring-do, however
inadequate the scope which the dull routine of modern life affords for
our adventurous impulses, we are most of us anxious to avoid the risk
of great financial loss. We are very glad to find someone to take it
off our shoulders if we can; so glad that we are prepared to pay him
for the service, to pay him a sum which covers not only the actuarial
equivalent of the risk, but something substantial over and above. In
this we are entirely rational. Our conduct is justified by the law of
the diminishing utility of money, which was noted at the end of
Chapter III. It would be plainly foolish, for instance, to substitute
for the certainty of an income of $2500 per annum an even chance of
$5000 or nothing, since the utility to us of $5000 is not twice as
great as that of $2500.

The majority of business risks are not of a kind against which it is
possible to insure. Insurance companies confine themselves to risks
which are mainly a matter of what we call objective rather than
subjective chance, i.e. risks in respect of which knowledge of
detailed facts peculiar to the individual case is of minor
importance. But such knowledge is of paramount importance in the case
of ordinary business risks. If, for example, a new enterprise is to be
undertaken, the special knowledge and experience which its promoters
possess is a vital factor in determining their estimate of the risk
involved. An outsider with no special knowledge would necessarily
require to estimate the risk far more highly if we were to form a
rational opinion on the basis of _his_ knowledge. So great, indeed,
would be the risk to him, that we can lay it down as a sound maxim
that people are extremely rash who invest their money in risky
undertakings about which they know very little. This subjective aspect
of business risk has a significance to which it will be necessary to
revert.

But, though most business risks are not and cannot be a matter for
premiums and policies, the principle, which the practice of insurance
illustrates, applies none the less. In the light of their knowledge
and experience, the promoters of a new undertaking must weigh up the
chances of failure and success, though they will not do so by the
precise methods of an actuary. They will requir