Sec.3. Monte Carlo and Insurance.  To assert this is not to ignore the strength of the appeal which the gambling instinct makes to many, if not to most of us.  The taste for gambling is, indeed, so deep and widespread that it would be foolish to leave it out of account in this connection.  It is clear enough that at places like Monte Carlo people are prepared to have the odds unmistakably against them, apparently for the sheer pleasure and exhilaration of taking risks.  Moreover, though for most people play at Monte Carlo represents a mere holiday indulgence, it would be unsafe to assume that what appeals to them there will not also appeal to them in their business affairs.  But what exactly is the secret of the charm of Monte Carlo?  It is the great attractive force of a small chance of a large gain, as compared with the deterrent 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, too, may have omitted in some particular to practice what we preach.