Forbes - Lessons on risk from the merchants of Venice: Is the world really that risky today?


(Desautels Karl Moore): The merchants of medieval Venice had a simple but effective metric for risk management. When sending ships out on trading voyages, they calculated their profit margins as follows: if we send out five ships, we can assume that four of them will be lost to pirates, storms, shipwreck and other perils. Therefore, we must ensure that the profit we make from the cargo carried by the fifth, surviving ship will cover the losses made by the destruction of the other four.