Adam Smith, Richard Price, and risk management

Happy Paris Liberation Day! And Happy Birthday to yours truly! In my previous post, I introduced and surveyed three separate passages from The Wealth of Nations in which Adam Smith refers in one way or another to the concept of probability. (Hat tip to my colleague and new friend Michael Emmett Brady for bringing these probability passages to my attention.) Today, I will return to the first of these three passages: the insurance business passage. To begin, this particular passage, which appears for the first time [1] in the last part of a 79-page pamphlet Smith published in 1784 (see Smith 1784a, p. 77) and which was then inserted into Book V, Chapter 1 of the third edition of Smith’s magnum opus (Smith 1784b, Vol. 3, p. 147, available here), reads as follows: “The value of the risk, either from fire, or from loss by sea, or by capture, though it cannot, perhaps, be calculated very exactly, admits, however, of such a gross estimation, as renders it, in some degree, reducible to strict…