Organizational structure makes large companies more risk- and uncertainty-averse, preferring a definite 5–10% to a probabilistic 50% chance of 50%, which kills innovation — whereas founders can act on intuition and explore a far larger solution space.
Sutherland recounts Richard Thaler asking eight division heads if they'd take a 50% chance of +50% profit against a 20% chance of −30%; six said no because they'd fear losing their job. The CEO wanted them all to take it given aggregate net gains. He concludes businesses push accountability downward, becoming highly conservative and more focused on downside avoidance than upside opportunity — while innovation and marketing are 'fat-tailed' exploration activities. ✦ AI generated
Rory Sutherland · My First Million · 2026-07-27 · original ↗
starts at this moment · 24:43
Richard Thaler, the Nobel Prize-winning economist and behavioral economist, the author of Nudge. He once spoke to a board of about 10 people, very large company... Would you take a decision if it had a 50% chance of increasing your profits next year by 50% and a 20% chance of reducing your profits by 30%? And six out of the eight of them said, 'No.'... And they replied, six out of the eight of them, 'Uh because uh 20% of the time or 30% of the time I'd lose my job.'... you realize that the way that businesses are structured, as you push responsibility and accountability further and further down the organization, they become more and more risk averse... both innovation and marketing, I would argue, are fat-tailed activities where 10% of what you do is probably more valuable than everything else. You know, you can't tell in advance which 10% it's going to be... what you do is you get rid of the discovery layer in the pursuit of efficiency. And in the short-term it looks like a great idea. But in the longer term it it it proves fatal, I think.
verbatim transcript · starts at 24:43
24:43quite interesting. There's a wonderful story I always tell, which is Richard Thaler, the Nobel Prize-winning economist and behavioral economist, the author of Nudge. He once spoke to a board of about 10 people, very large company. And he goes to the eight heads of the largest divisions of this company and he asked them all simultaneously a question. Would you take a decision if it had a 50% chance of increasing your
25:08profits next year by 50% and a 20% chance of reducing your profits by 30%? And six out of the eight of them said, "No." And Thaler goes back and says, "Well, you know, you're all good enough mathematicians, I assume, to realize these are highly favorable odds. To a gambling man, you know, this is a very, very good bet. And yet you declined to take part. Why is that?" And they replied, six out of
25:34the eight of them, "Uh because uh 20% of the time or 30% of the time I'd lose my job." And then the interesting thing happens, which is the chief executive is sitting at the end of the table and looks aghast at the eight people and goes, "But I wanted all of you to take those odds because net net, in aggregate, we'd almost certainly end up massively better
25:56off. Yes, two divisions, one division, might have a slightly disappointing year, but four of them would perform spectacularly." And you realize that the way that businesses are structured, as you push responsibility and accountability further and further down the organization, they become more and more risk averse and they become more and more uncertainty averse. So, they would prefer a definite 5 to 10% to a probabilistic a 50% chance of
26:2750%. And what happens then is that you fundamentally you become highly conservative. You're more worried about downside avoidance than you are upside opportunity. And as a result, obviously both innovation and marketing, I would argue, are fat-tailed activities where 10% of what you do is probably more valuable than everything else. You know, you can't tell in advance which 10% it's going to be. They are processes of exploration and discovery.
26:58And what you do is you get rid of the discovery layer in the pursuit of efficiency. And in the short-term it looks like a great idea. But in the longer term it's it it proves fatal, I think, because you've lost the capacity to adapt, to reinvent, to reposition in pursuit of the occasional um the occasional breakthrough. >> We we have um a very startup oriented audience of which a lot of people are
27:26founder-led businesses or or they want to be. So, we could talk about like how big companies turned around, but what's an example of a startup or small company that you look at and you're like, "Oh, they nailed it and here's why they nailed it." Even though if if this was pitched at a big company, this would never have worked, but here it is kicking ass. >> I mean, the example that I always