Trust and Risk

Trust

²⁰ Wages vary according to the trust reposed in the workers.

²¹ The wages of goldsmiths and jewellers are superior to other workmen because they are entrusted with precious materials.

²² We trust our health to the physician and we trust our fortune, life, and reputation to the lawyer.

Such confidence could not safely be entrusted to mean or low people.

• Their reward must give them that rank which so important a trust requires.
• Their long and expensive education, combined with the trust needed, enhances their wages.

²³ When a person employs his own stock, there is no trust. The credit from other people, depends, not upon the nature of his trade, but upon their opinion of his fortune, probity, and prudence.

The different profit rates, therefore, cannot arise from the different degrees of trust reposed in the traders.

Risk

²⁴ Wages vary according to the probability or improbability of success.

²⁵ The probability that any person will be employed in the occupation he was educated for is very different in different occupations.

• In the mechanic trades, success is almost certain.
• In the liberal professions it is very uncertain.

If you put your son as a shoemaker’s apprentice, he will no doubt learn to shoes. Send him to study law and there is a 5% chance that he will be able to enter the law profession.

In a perfectly fair lottery, those who draw the prizes should gain all that is lost by those who draw the blanks. In a profession where 20 fail for one that succeeds, that one should gain all that should have been gained by the unsuccessful 20.

The 40-year old successful law counsellor should receive the retribution of the more than 20 others who failed, on top of the recompense for his education.

The extravagant fees of law counsellors are never equal to their real retribution The income of all workers in common trades will generally exceed their expense. The income of all counsellors and law students in all courts, bears but a very small proportion to their expense, even though their income is high and their expenses are low. The lottery of the law is very far from being a perfectly fair lottery. They are under-recompensed like many other liberal and honourable professions.

²⁶ Despite these discouragements, the most generous and liberal people are eager to crowd into them because of= The reputation attached to the superior excellence in them The natural confidence which people have in their own abilities and good fortune.

²⁷ To excel in any profession is the most decisive mark of genius or superior talents. Public admiration always makes a part of their reward. It makes a big part of that reward of the physician It makes a bigger part in the reward of law. It makes almost the whole reward in poetry and philosophy.

²⁸ There are some beautiful talents which commands admiration but when used for private gain is considered as a sort of public prostitution.

The monetary compensation of those who use talents for private gain, must be sufficient to pay for= The time, labour, and expence of acquiring the talents The discredit it brings as the means of subsistence.

The basis for the exorbitant rewards of players, opera-singers, opera-dancers, etc. is:

• The rarity and beauty of their talents
• The discredit of employing them this way

At first sight, it seems absurd that we should despise them yet highly reward their talents. While we despise them, we must reward them.

Should the public opinion about them alter, their recompence would quickly diminish. More people would apply to them, and the competition would quickly reduce their recompense. Such talents, though uncommon, are not so rare. Many possess them in great perfection but do not use them Many more are capable of acquiring them if there were any honourable use.

²⁹ The over-weening conceit which most people have of their own abilities, is an ancient evil remarked by philosophers and moralists of all ages.

Their absurd presumption in their own good fortune, has been less noticed, but is more universal. Everyone has some share of it. Everyone overvalues the chance of gain and undervalues the chance of loss. No one values the chance of loss more than it is worth.

³⁰ The universal success of lotteries proves that the chance of gain is naturally over-valued.

The world never saw a perfectly fair lottery where the whole gain compensated the whole loss. The undertaker could not profit from it.

In state lotteries, the tickets are really not worth the price paid by the original subscribers. Yet they sell for 20-40% advance. “The vain hope of gaining some of the great prizes is the sole cause of this demand.”

The soberest people do not think it wrong to pay a small sum for the chance of gaining £10,000-20,000. Although they know that even that small sum is perhaps 20% or 30% more than the chance is worth. In a lottery where no prize exceeded £20, there would not be the same demand for tickets. To have a better chance, some purchase several tickets while others purchase small shares in a still greater number.

This is the most certain proposition in mathematics= that the more tickets you buy the more likely you are to be a loser. Buy all the tickets in the lottery and you lose for certain. The more tickets you buy, the more you are certain to lose.