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More_Right comments on Rationality Quotes April 2014 - LessWrong
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Or with smart people who profit at the state's expense when it rescues fools from their mistakes. If it's known that folly has no adverse results, people will take more risks.
While this is true, it may also be the case that humans in the default state don't take enough risks. Indeed, an inventor or entrepreneur bears all the costs of bankruptcy but captures only some of the benefits of a new business. By classical economic logic, then, risk-taking is a public good, and undersupplied. Which said, admittedly, not all risk-taking is created equal.
That's exactly wrong. Bankruptcy releases the entrepreneur from his obligations and transfers the costs to his creditors.
Not to say that the bankruptcy is painless, but its purpose is precisely to lessen the consequences of failure.
The inventor is still bearing the costs of the bankruptcy. The creditors are bearing (some of) the costs of the failure, which is not the same thing.
This premise doesn't seem true (for all that the conclusion is accurate). Our entire notion of bankruptcy serves the purpose of putting limits on the cost of those risks, transferring burden onto creditors. An example of an alternate cultural construct that come closer to making the entrepreneur bear all the costs of the risk is debt slavery. Others include various forms of formal or informal corporal or capital punishments applied to those that cannot pay their debts.
That seems right, and it also seems as though the opposite is sometimes right. If a company knows it can reap the benefits of operations (e.g., of product sales) without bearing the cost of those risks associated with its operations (e.g., of pollution), is this a case of risk-taking being oversupplied?
Pollution does not seem particularly well described by risk or risk-taking; it basically a certainty with industrial operations.
In the same way that "product sales" was intended to refer to the result (income), "pollution" was intended to refer to the result (health problems, etc.). While one might think that some result is basically a certainty, the scope and degree of real problems is frequently uncertain. An entrepreneur who weighs potential public health risks does not seem any more difficult to imagine than one who weighs potential bankruptcy risks.
At any rate, pollution is merely an example; you can take any other example you find more suitable.