Matthew Gwyther: Success always starts with failure, you've said, Tim. When it comes to risk, you suggest: one, always try new things but expect that some will fail. Two, be sure to make that failure sustainable so if something does fail, it won't sink you completely. Three, know and understand when you have failed - that's very important. If something hasn't worked, you need to acknowledge that and maybe draw a line under it. But do you think people are naturally risk averse?
Tim Harford: The academic orthodoxy isn't so much that people are risk averse, it's that risk can be measured. If people don't like risk they'll pay something to avoid it; if they love it they'll pay something to acquire it. Then there are risk-neutral people who don't care either way. The problem with that chunk of economic theory is the assumption that risk can be measured in a straightforward way. I know of a casino whose four biggest risks have been: one of its performers was attacked by his own tiger; the casino owner's daughter was kidnapped and held for ransom; there was a bomb threat by a disgruntled employee; and there had been a tax investigation case because a CFO had done something dubious. None are the sort of risks you'd anticipate if you were running a casino but each could potentially have ended the business.
Steve Moore: You suggested in your book, Adapt, that to succeed one has to try different things, not all of which would stick. It's interesting to see Google's approach, which seems to follow Darwin's theory of survival of the fittest - it chucks a load of things in the market and sees which sink or swim. But in my business I try to measure the risk early on, before making the products public. We're happy to spend and potentially waste some money. But only if it sticks will we take it to the market. I think that's the difference between little and big companies.
Tim Harford: With Google it's not so much because it's big, although it is, it's because it's a cloud computing company. It can fail in public. Ford, for example, is also big but Ford cannot roll out a car in detail and then fix it if the brakes don't work. Google really can do that with its products.
James Alexander: The whole notion of risk is fascinating. It means different things to individuals and organisations, and I suspect that people's view of risk changes over time. For me, the key thing is understanding what it is that you're prepared to lose and what are you prepared to give up. When I was thinking about whether to leave Egg or not, I spoke to lots of people, including headhunters and other entrepreneurs. They said, what's the worst that can happen? And I decided that the alternative wasn't so bad.
Matthew Gwyther: Dinesh, tell us about your first big venture into business with Ebookers. Nobody had done what you did before so it must've looked to the outside like a pretty dicey proposition.
Dinesh Dhamija: I used to travel a lot in the US and I saw what the internet was doing there - especially to travel, the business I was in. I wanted to bring the same approach to England, but people said we couldn't because the Americans are so different. The next step we needed over here was the technology. I found a software professional from Dresden University in Germany who said he could write it very easily. And it turned out perfect. I wasn't taking that much of a risk because I knew it had worked in the States.
Matthew Gwyther: Rosaleen, what about the difference between men and women when it comes to the subject of risk? It's been suggested that this aggressive attitude enabled us to get into the financial mess that we did in 2007. If women had been more involved, would we have got ourselves in the mire that we did?
Rosaleen Blair: I don't believe in stereotypes. I think it's much more about competencies than it is about men vs women. There's a danger the debate has been skewed in the wrong direction. It's more about the diversity round the boardroom table and the richness of experience, as opposed to being simply about women. After the economic crisis, we're seeing that more boards are focusing on having a balance of male and females. A lot of the stats today would indicate that the highest performing boards are the ones which have a more equal balance of men and women leading them. It's interesting to see the differences between female and male entrepreneurs when it comes to finances - it's often suggested that women are more likely to ask the banks for the bare minimum that they need. Men can be far more foolhardy. It's more typical for male entrepreneurs to be thinking about five or 10 years down the line, so they ask for more when in reality they need substantially less.
Tim Harford: Yes, there's some evidence for this. The economist Terrance Odean collected data on the psychology of risk-taking. He examined the behaviour of stock market investors and he found that men were much more confident than women. This was extremely bad for them - they traded too much, and on average they lost more money than the women. So being willing to take risks is not always a positive thing.
Rosaleen Blair: What we see when it comes to candidates applying for roles is that you put out a job specification, you need the individual to be capable of doing at least eight things. Typically we find that a man won't think twice about applying if he can do two - whereas a woman can do seven and a half but won't apply because she can't do the last bit of the eighth. That's very typical and is similar to the whole risk approach.
Steve Green: It's important to have balanced teams. Most people might be surprised to hear that, as an insurer, we look at board directors and assess how risk is on the agenda of the board. Is there that spread of risk? The vast majority of organisations we insure we never meet. So how do I distinguish between a good risk and a bad risk? The biggest single denominator is the quality of the people who are leading it.
Matthew Gwyther: But do you think large corporations are more likely to be terrified of risk - and of adapting their behaviour and doing something that is disruptive?
James Alexander: Yes and I think they miss opportunities as a consequence. In the corporate world, they are likely to make decisions that are less risky. But people come with an awful lot of baggage. If you're a leader in a large organisation you probably have a shareholder group around you. That has to be factored in - it influences your characteristics and that predetermines who you are, although perhaps as an individual you might have a different view.
Matthew Gwyther: What about optimism and pessimism? When it comes to the measurements of risk and being able to work your way through it, who's better at it - optimists or pessimists?
Tim Harford: Never mind glass half-full, glass half-empty, somebody has to be willing to speak up and say the milk is sour. And that is a really, really tough job to take on; the person who speaks up and who dissents and says there's a serious problem here. These people are never welcome and I discussed several cases in the book, such as William McCallister, a military adviser to the Coalition Provisional Authority, who more than anybody else saved the US army from itself in Iraq. He was a guy who said this isn't working, I'm going to change the strategy of my group of men. All his superior officers told him he was out of line, passed him over for promotion and denied him reinforcements. We need to work out how to listen to the dissenters and take them seriously because, as Steve (Moore) said, you want to fail in private, you don't want it to be a multibillion dollar failure. You want the whole thing to be something you can sit on and fix before it costs too much money and too much in the way of reputation.
Steve Moore: We have kept a Captain Clipboard in our company. He's very good at what he does - he makes sure we're OK financially and helps us make money from deals. But he doesn't have the vision to come up with the ideas to take us to the next place. So it's about putting that guy in the right place. I'm glad he doesn't run my company but I'm glad he's there nonetheless.
Rosaleen Blair: I would say I am an optimist - but I surround myself with people who are pessimistic. I think it makes for a much richer debate. The leader has to be optimistic but it's critical that good leaders surround themselves with people who are more pessimistic.
Dinesh Dhamija: I don't think one can say pessimist. Perhaps realist. I wouldn't like to work for you because, by definition, I'd have to be a pessimist.
Rosaleen Blair: It's important to have people around you who aren't afraid to say something isn't going to work. That's fundamental - if everybody thinks the same, the business would be gone in a week. It's important to create a culture where people feel safe enough to challenge - I think it's easier to do when you're a smallish company.
Tim Harford: I have a very striking example of this. I went to visit Hinkley Point, an ageing nuclear reactor on the Somerset coast. I was told the site had a culture of dissent - if anyone sees anything they think is wrong, they will challenge it. And I was in a meeting room with the head of safety, with my hard hat on and my steel-toed boots, to go and look at the reactors. Suddenly this lady pushing a tray full of sandwiches came in. She looked at the floor and said: 'Those trainers are a tripping hazard. Please remove them,' in a polite but firm way. She was telling off the head of safety over a tripping hazard. It's not the same as a nuclear meltdown but it was interesting to see.
Steve Green: The natural form for insurance companies is to be quite pessimistic, because we try to understand risk, whether it's foreseen or unforeseen. If we don't understand something, we'll often shake our heads. I know of an insurer which boldly states that it doesn't insure things it doesn't understand.
Tim Harford: Let me challenge you, Matthew, on the point that we need to do more of what we already did to get out of the financial mess. Think of the kind of risks we're talking about here. A lot of innovation risks - they are probably going to fail but the downside is pretty limited. Dinesh, when hiring this guy from Dresden - how much did you really have to lose? You took a risk but there was a big upside and a limited downside. Those are the kind of risks we need to be looking out for. The financial sector has been churning out products with an almost guaranteed upside and then often hit with the small print that has the potential for almost catastrophic loss. This is the absolute mirror image of the risks that any good entrepreneur takes. The problem is you look like a safe pair of hands - you are an investment banker, you're pushing out these products every month, every quarter, every year. There's a profit, there's another profit, they get bigger and then suddenly the whole thing collapses.
Matthew Gwyther: But do you think the banks are already safer than they were in 2006 or not?
Tim Harford: We need to wait for the smoke to clear. With our exposure to Greece, Spain, Portugal and the euro debt crisis there's too much mess to make that judgement at the moment. I want to see regulatory reform, banks funding themselves more from equity and less from debt. It's not the huge catastrophe the banks make it out to be - just a change in the legal claims on banks. It makes it more flexible. The Independent Commission on Banking has made very good progress. But my fear is the banking lobbies are very powerful - people forget and aren't interested in the technical detail.
Dinesh Dhamija: The banks' balance sheets are shocking. On the one hand, the government's saying to the banks: 'We've supported you from going bankrupt, you have to lend money.' But they can't lend money - they have to increase their equity and become stronger before they can lend and that's why this recession's gone on so long. The recession will end only when they start lending again. Then there's the crisis in the eurozone. We are accumulating more risk by supporting Greece. Across the Atlantic, California's bankrupt, Arizona too and New York's next. Both currencies are going down the tube. I don't know what's happening. The problem is they're trying to spend through it. That's not the way. Would you do that in your family? Would I do that in my family? No way.