Richard Thaler

Thaler's bet: 6 of 8 division heads refused great odds to keep their jobs

Richard Thaler asked a company's division heads whether they would take a bet with a 50% chance of raising profits 50% and a 20% chance of cutting them 30%. Six of eight declined because a loss could cost them their jobs, while the CEO wanted all of them to take it. Pushing accountability down an organization makes it more risk-averse.

“Would you take a decision if it had a 50% chance of increasing your profits next year by 50% and a 20% chance of reducing your profits by 30%? And 6 out of the 8 of them said no. And Thaler goes back and says, well, you know, You're all good enough mathematicians, I assume, to realize these are highly favorable odds. To a gambling man, you know, this is a very, very good bet. And yet you decline to take part. Why is that? And they reply, 6 out of the 8 of them, because 20% of the time or 30% of the time I'd lose my job.”