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Choices Involving Risk 11 Learning Objectives After reading this chapter, students should be able to: } Defi ne and measure economic risk. } Illustrate an individual’s risk preferences graphically. } Explain why people purchase insurance policies. } Analyze why people take certain risks and avoid others. } Identify and explain several strategies for managing risk. arly in 1996, two graduate students at Stanford University, Larry Page and Sergey Brin, began developing a new technology for retrieving information from huge data- E bases. With no business experience to speak of, they tried but failed to convince investors of their technology’s commercial potential. Reluctantly, they set up operations in Page’s dorm room, where they cobbled together a patchwork data center made of surplus computer memory acquired at bargain prices. Over the next two years, they managed to raise just under $1 million from interested investors, which they used to launch a company. By September 1998, Google Inc. was offi cially open for business. Six years later, on August 19, 2004, the company held an ini- tial public offering (IPO) in which for the fi rst time mem- bers of the general public were allowed to buy shares. Page and Brin both collected more than $40 million in cash, retaining shares valued at more than $3.2 billion each! They (and their investors) had taken a big chance— one that had paid off beyond their wildest expectations. During the dot-com mania of the late 1990s, thou- sands of bright young entrepreneurs with clever ideas launched risky new ventures. Unlike Page and Brin, most came up empty handed. A grocery delivery service Google, Inc. founders Larry Page and Sergey Brin