OPINION21 October 2021

Rory Sutherland: When gains outweigh losses

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Impact Opinion

In his most recently published Impact column, Rory Sutherland reflects on the value of risk and the question of scale. 

Traditional weighted scales against turquise background

Daniel Kahneman, in Thinking, fast and slow, recalls presenting to the board of directors of a large Fortune 500 company. Going around the table, he asks the 10 heads of the company’s separate divisions the same question: “Would you take a decision where, 50% of the time, you would increase your division’s revenue and profits by 50%, but with the risk that 30% of the time your revenues and profits would fall by 30%?”

All but two of them would have declined these odds, even though they represented an expected gain. When asked why, they candidly explained that such a decision would mean that 30% of the time they would lose their jobs.

Sitting aghast at the end of the table is the chief executive. “But I’d want all of you to take those bets, simply because – on aggregate – the gains would easily outweigh the losses.”

To which they might have replied: “Yes, it would almost certainly be a great ...