Ritholtz notes traders vowing to sell a junk stock the moment it gets back to break-even, and Schrager says poker players do exactly the same. The break-even effect is a corollary of loss aversion studied by John List: being down produces risk-taking you would never have accepted while up.

Traders and poker players share the same break-even vow
It is a corollary of loss aversion, not a separate bias
Risk appetite inverts only when you are behind
Related evidence: investors sell winners and hold losers
Older, more experienced participants fall for it less

“I know this stock is a piece of junk, but dear Lord, if I get back to break even, I swear I'll sell”
Barry Ritholtz · 24:20

“when you're down, you're so determined to win back, so you didn't experience a loss, you double down and take extra risk”
Allison Schrager · 24:50

#loss-aversion#behavioral-finance#trading

Myth Buster27:43

Assuming serial correlation where there is none

Schrager's mother, nearing retirement, expects her portfolio to double every year without accepting the risk that would require. Schrager treats this as a general error: people assume trends persist, whether in house prices over twenty years or interest rates over thirty.

Expecting outsized return without accepting the matching risk
The same optimism appears in booming housing markets
Thirty years of falling rates gets extrapolated forward
Index funds give cheap, efficient exposure but carry no guarantees
Correct stock allocation depends on where you sit in the life cycle

“I think people often in assume there's serial correlation where there is none.”
Allison Schrager · 28:49

“If you want more return that comes with something”
Allison Schrager · 28:05

#expectations#risk#investing#extrapolation

Hot Take· 3

Hot Take50:08

Should a researcher on the verge of a cure get a pass?

Schrager wrote about an economist accused of harassing research assistants who defended himself by pointing to the social importance of his work. The philosopher she consulted inverted the argument: important work raises the standard rather than lowering it, because misconduct may already have suppressed contributions that never happened.

The defence offered was the social value of the research
The philosopher argued importance raises the behavioural standard, not lowers it
No good work happens alone, so misconduct lets down everyone's effort
The counterfactual cuts the other way: discouraged colleagues may have delayed progress
His conclusion was to remove the researcher rather than add supervision

“the philosopher said just fire the guy.”
Allison Schrager · 53:21

“if we're gonna have a moral purity test on that stuff, your museums will be empty and there'll be nothing on the air waves.”
Barry Ritholtz · 51:56

#ethics#academia#misconduct#counterfactual

Hot Take54:03

Millennials as the wealthiest generation, measured properly

Schrager counts human capital — the value of future earnings — as an asset. On that basis student debt paired with education looks like an investment rather than a shortfall against homeownership. Early earnings are lower, but the trajectory is steeper and unemployment risk is materially lower.

Life-cycle wealth includes the present value of future earnings
Student debt paired with education reads as investment, not just liability
Graduates start below non-graduates but accelerate past them
College graduates also face substantially lower unemployment risk
The open question is whether today's tuition levels still clear that bar

“So I think of human capital, which in life cycle economics is the value of your future earnings.”
Allison Schrager · 54:27

“often out of school, you're gonna earn less than someone who you know didn't go to college. But the trajectory of your earnings as follows…”
Allison Schrager · 56:49

#human-capital#millennials#education#life-cycle

Hot Take1:09:20

Macroeconomics still has no real role for risk

Schrager's biggest regret from graduate school is choosing macro, which traditionally does not incorporate risk at all. The academic takeaway from the financial crisis was that macro models had no meaningful role for the financial sector, so they could not capture systemic risk. Her conclusion: basic finance belongs in basic economics training.

Traditional macro models leave risk out entirely
Post-crisis work tries to put finance and risk back into macro
Without a financial sector, a model cannot capture systemic risk
Adding risk makes any model considerably more complicated
She argues the core sequence should be macro, micro and finance

“macro models have no meaningful rule for financial sector, so how are you gonna even capture systemic risk?”
Allison Schrager · 1:09:39

“I now feel strongly I don't think anyone agrees with me that finance basic finance should be part of basic economics training”
Allison Schrager · 1:10:03

#macroeconomics#risk#finance#education

Explainer· 6

Explainer09:11

The negotiation training a brothel runs and most employers don't

The Bunny Ranch does not set prices — every transaction is negotiated, often by women in their twenties with men in their sixties over large sums. Most arrive not knowing how, so the house trains them to know their value and ask for enough. Schrager's own takeaway was a technique for defusing adversarial negotiation.

No set prices; every transaction is individually negotiated
The stated goal of the training is teaching workers to know their value
Schrager notes a car dealership has such training and most jobs do not
Putting several options on the table makes the negotiation feel non-adversarial
The negotiator has to work closely with the counterparty immediately afterwards

“the women here don't know their value, so we teach them to know their value and to ask for enough.”
Allison Schrager · 09:26

“how to just put a bunch of things out there, which apparently is a negotiation technique.”
Allison Schrager · 11:48

#negotiation#pricing#self-worth

Explainer12:07

Why the legal market charges four times the illegal one

Schrager surveyed workers on their transactions and paired that with a scraped dataset of about 1.2 million illegal transactions. The legal premium is large: roughly $1,500 at the ranch against a median of a few hundred dollars an hour online. Her reading is that the gap is the price of eliminated risk.

Data set combined her own survey with roughly 1.2 million scraped illegal transactions
Median illegal price found was around $400 an hour
Clients in the legal market avoid arrest, robbery and untested partners
Roughly half the fee goes to the house, before self-employment and state taxes
Workers were still high earners, at around six figures

“you're paying an insurance premium to eliminate all of the risk associated with legal sex for higher transactions.”
Barry Ritholtz · 13:50

“So I had one point two million legal sex transactions.”
Allison Schrager · 12:53

#pricing#risk-premium#data#insurance

Explainer21:03

The top poker player who folds seven hands out of eight

Schrager profiled a notoriously volatile professional whose edge is the opposite of his temperament. He plays only about twelve percent of hands, and the poker term for that discipline is patience. His visible volatility is partly genuine and partly an asset once he learned to manage it.

He participates in roughly one hand in eight
Poker calls the trait patience; it looks nothing like his public persona
The volatility began as a problem before it became an edge
He described being so emotionally overwhelmed he would nearly pass out
Ritholtz reads part of the display as pressure on other players

“twelve percent. That's in a one out of eight hands, so seven out of eight hands he's not participating in.”
Barry Ritholtz · 21:34

“I think that's his natural temperament and he's noticed it's also an asset.”
Allison Schrager · 22:02

#poker#patience#discipline

Explainer25:58

The study where random selling beat professional selling by 100bp

Ritholtz describes a 2018 study that replaced each portfolio manager's actual sale with a random sale from the same portfolio. The random sales outperformed by about a hundred basis points over the following year, and two categories accounted for most of the gap.

Benchmark was the manager's own portfolio, not an index
Random sales beat manager sales by roughly 100 basis points over a year
Managers sold winners that were still benefiting from momentum
They held collapsed positions until they were giant losers, then sold deep value
Both errors were classified as behavioural rather than analytical

“it turned out that random sales outperformed manager sales by a hundred basis points over the next year.”
Barry Ritholtz · 26:29

“there's all this evidence that people won't sell losers, but they'll sell winners.”
Allison Schrager · 25:54

#portfolio-management#selling#behavioral-finance

Explainer38:00

How tax reform pushed thoroughbred breeding toward sprinters

Once horses stopped working as tax shelters, breeders needed returns sooner, so yearlings get sold at one year old — before there is real information about racing ability. The only signal available is parentage, which pushes breeding toward inbreeding and toward sprinters over distance runners.

Horses had functioned as tax shelters and now must stand on their own economics
Lower long-term capital gains returns pull the realisation forward
At one year old the only information is who the parents are
Result: more inbreeding and a bias toward sprinters
The real money is in stud fees, which still require a strong race career

“So the fact that there's less return to long term capital gains and they want to realize the returns from their risk earlier means now…”
Allison Schrager · 38:27

“The only information you have is who its parents are.”
Allison Schrager · 38:44

#incentives#tax#horse-racing#misalignment

Explainer48:36

The charity appeal that beat the altruistic one

In an Alaska study using the state's oil dividend, donors were shown one of three cards: warm your heart, improve Alaska, or nothing. The warm-your-heart group donated the most and were most likely to donate — the appeal that centred the giver beat the one that centred the recipient.

Alaska's dividend payments make it a favourite site for economic studies
Three conditions: self-focused, cause-focused and a control
Warm-your-heart produced both the highest amounts and the highest participation
Ritholtz's reading: it made the donation about the donor
Attributed to John List's research

“And they found the warm the heart group donated the most and we're most likely to donate.”
Allison Schrager · 49:10

“they made the charitable donation about the person as opposed to the recipient”
Barry Ritholtz · 49:15

#charity#behavioral-economics#persuasion

Story· 4

Story07:01

How a retirement economist ended up reporting from a Nevada brothel

Schrager wrote a piece for Quartz about an illegal online brothel whose operator earned a premium purely for screening clients. It travelled, and the Bunny Ranch called to say that if she was writing about brothels she should write about them. What hooked her was a throwaway line about the ranch running a negotiation training programme.

The original story was about screening clients as a priced service in an illegal market
Screening carried a premium because the workers involved were especially vulnerable
The Bunny Ranch cold-called her after the piece did well
She resisted until they mentioned negotiation training
Quartz backed it immediately and sent a video crew

“if you're gonna be writing about brothels, you should be writing about us”
Allison Schrager · 08:09

“this isn't my thing, this isn't what I'm like known for. I'm a retirement economist.”
Allison Schrager · 09:05

#journalism#risk#sex-work#reporting

Story14:41

The sex workers who turned out to be index-fund investors

The ranch brought in financial planners to teach financial literacy. Schrager interviewed women who came from households with no bank account and did not know what a credit score was, and who now described holding index funds in an IRA and questioning the fees on active management.

Financial planners were brought in to teach the workers directly
Many came from households with no banking relationship at all
They held retirement accounts invested in index funds
Their stated reason was avoiding the fees on active management
Ritholtz's reaction: they were all indexers

“telling me, oh, yeah, my ra is on index funds.”
Allison Schrager · 14:58

“They're they're all indexers.”
Barry Ritholtz · 15:17

#financial-literacy#index-funds#retirement

Story43:31

Paparazzi alliances: pooling risk with people you can't trust

Photographers face enormous idiosyncratic risk — the chance of getting the money shot on any given day is small. They form alliances to share tips and sometimes royalties, which pools that risk. But because the money is in exclusives, everyone has an incentive to cheat, so the alliances constantly re-form and collapse.

Idiosyncratic risk on any single day is very high
Alliances share tips and sometimes royalties
Pooling removes the idiosyncratic component
Exclusives create a standing incentive to defect
The alliances are inherently unstable and constantly reshuffle

“They have to form these complex alliances to share tips and sometimes royalties.”
Allison Schrager · 43:39

“These alliances are inherently very unstable”
Allison Schrager · 43:55

#risk-pooling#incentives#paparazzi#cooperation

Story1:03:29

Failing every comp after teaching herself six years of maths

Schrager entered a quantitative PhD without a maths background, taught herself years of material in a sleepless first year, and still failed almost all her comprehensive exams against students who had been maths champions. After rest let the knowledge settle, she retook them. Her lesson: nobody remembers the first failure.

A quantitative PhD attempted with no maths background
Self-taught roughly six years of maths in one year, working through textbooks
Still failed nearly all first-year comps against specialist competition
Rest revealed how much she had actually absorbed
Only the graduation is remembered, not the first-year failure

“I taught myself six years worth of math myself in my free time.”
Allison Schrager · 1:03:51

“no one remembers that you failed your first year exam. All they remembers that you graduated.”
Allison Schrager · 1:05:10

#failure#resilience#academia

Takeaway· 3

Takeaway45:20

Why leaving a talent cluster deserves a pay rise

Schrager frames location through human capital. Staying near other strong firms keeps your skills fresh and preserves the option to change jobs, which she treats as genuinely valuable. Moving somewhere with no comparable employers means surrendering that option, and employers should compensate for it — which is part of why Amazon wanted New York.

Human capital needs maintenance across a whole career, not a one-time credential
Proximity to other strong firms keeps skills current
The ability to switch jobs is itself a valuable option
Company towns strip that option away
Modern skills are transferable, so clusters matter more than they used to

“You have the option of changing jobs. That's always a very valuable option.”
Allison Schrager · 46:26

“You don't just go to Harvard and then you're just set for life.”
Allison Schrager · 46:10

#career#human-capital#talent#optionality

Takeaway47:50

What people actually regret not saving for

Asked at the end of life or in retirement, people do not wish they had funded better holidays or a more luxurious lifestyle. The regret is about unplanned shocks — a divorce that consumed the savings. Saving is less about future consumption than about the events you failed to plan for.

Retirement regret centres on shocks, not luxuries
The stated example is a divorce wiping out savings
Saving functions as protection against the unexpected
Emergency savings remain badly under-prioritised
The specific emergency-savings statistics are contested, the direction is not

“I didn't realize that divorce would blow all my savings.”
Allison Schrager · 48:15

“people really don't make emergency savings enough of a priority.”
Barry Ritholtz · 48:30

#saving#retirement#regret#emergency-fund

Takeaway1:06:04

Career advice: never be the smartest person in the room

Her advice to anyone entering economics, risk or academia is to find the smartest person available and attach yourself to them. The rule came from her father's track advice — find the fastest runner and keep up. In a job, the smartest person in the room should never be you.

Attach yourself to the strongest person you can find
The rule was inherited from athletics coaching advice
If you are the smartest in the room, something is wrong
Actively seek mentorship and stay open to it
Her own version was working with Robert Merton after a low career point

“Find the smartest person you can and attach yourself to them.”
Allison Schrager · 1:06:15

“find the smartest person in the room and it should never be you”
Allison Schrager · 1:06:52

#career-advice#mentorship#learning

Frameworks in this episode

Convert Probabilities Into Frequencies

Hedge vs. Insure: The Two Ways to Buy Down Risk

Take Risk Off the Table to Stay Rational

The Risk-Compensation Check

Insights & moments

⚡Myth Buster· 2

The break-even effect: why losing makes cautious people reckless