Have you seen Lage Raho Munnabhai, the movie?
Munna (played by Sanjay Dutt), in an attempt to impress the girl he is in love, reads a lot about Mahatma Gandhi. He reads so much on Gandhiji that he starts hallucinating. He sees Gandhiji talking to him and even offer his good counsel. In one of the high points, he even inspires Munna to take on a shrewd businessman using his favourite weapon – ahimsa or non-violence.
I loved the movie. I watched it with my friend Hemant.
Hemant was sure that he didn’t need health insurance. “This is a waste of money. I am fit and fine. I rather invest that premium money in stocks and get it to multiply. Why lose out on paying silly premium on a policy, which i will not make a claim on?” Hemant argued.
Before I could say anything, his phone rang and he excused himself to take the call. I was trying to form my argument to help him understand why it was important.
While I sat wondering I felt someone standing next to me. Surprisingly, I didn’t see anyone walk in. I wanted to ask who he was but he quickly put his hand on his lips.
He came closer and said, “I am Blaise Pascal.”
Millions of cells in my brain started digging out all the data inside. Now my surprise had no limits.
“Blaise Pascal, the 17th century mathematician, scientist, philosopher thinker?” That’s the only reference my mind could come up with.
He nodded.
“No way!”
With a beatific smile, he whispered in my ear “I have come to help.”
I didn’t know what to say.
“Draw a matrix.” I meekly followed his instructions and this is what emerged.
Hemant was back and wondering what was I upto.
I turned the drawing to face him. He looked at it for a few seconds.
“Ah! I get it now. I think I will buy. You should have shown this before.”
I couldn’t believe. This made the decision so easy.
I looked up to Pascal with an expression of gratitude. He smiled and disappeared.
**Oh my God! What just happened?**
And then I realised.
Just like Munna, Pascal made his hallucinating presence felt to me – well, because I had been reading about him.
In what I read, Pascal penned his thoughts. In one of these thoughts, he simply wrote that between a bet whether or not God existed, one was better off being a believer than a non believer.
Illustrated, this is how it looks like:
This has famously come to be known as Pascal’s Wager.
Pascal’s Wagers has important lessons and can be applied to many of our complex decisions – financial and others.
In Hemant’s decision on insurance, Pascal clearly made the decision a no brainer. Even though the probability of something can be low, the financial consequences could be very high.
If he ended up paying for costs of treatment or hospitalisation, it could well run into a few lakhs. For his current financial position, that could lead to a serious dent in the pocket. He could easily be pushed back by a few years.
Hence, it is better to pay the premium and buy the insurance, even if you never (and hopefully should never) get to use it.
Peter L Bernstein, one of the finest investment minds of the 20th century as also the author of Against the Gods – The remarkable story of risk, has the same advice. The consequences need to be given more weightage than the probability.
—Will Pascal whisper in your ears too? Sure, he can. We will apply Pascal’s Wager along with several other tools to make sensible investment decisions, in the Money Master course. COMING SOON. Check out the introductory details here. —