In fact, my optimal design would permit chosen individuals to try over and over again without penalty, encouraging them to take risky opportunities, provided there is at least a straight-face possibility of correspondingly high reward.
In practice, these kind of situations tend to lead to things like the dot-com bubble.
I'm not sure I understand the leap in logic there. If people have a reasonably comfortable minimum income regardless of what they do, how does that induce runaway speculation? Would venture capital firms not be as hesitant to hand out money to people who consistently failed to return on investment? Granted, VC firms could still get caught up in fads like in the dot-com bubble, but I don't foresee a minimum income really driving (very rich, well above the minimum income level) VCs into higher risk taking behavior.
In the open thread, moridinamael hypothesized that LWers would be willing to take more risks in order to become rich if they had a financial safety net. This seems like an idea worth exploring further.
What would you do if you had a financial safety net (maybe a year's worth of living expenses) to fall back on if your venture failed?