BUSINESSWEEK ONLINE : AUGUST 30, 1999 ISSUE

Imagine a market where hedgers and speculators meet to trade futures, similar to today's betting on the value of corn or soybeans. The wagering will concern the future value of a career, a neighborhood, or even a country

Think of the invisible losses that society suffers because of fear of failure: the brilliant careers that are never attempted, the great companies that are never launched, the products that are never produced. Society won't eradicate fear of failure in the 21st century. But it will do the next best thing: It will devise new kinds of financial instruments--new hedges--that will reduce the riskiness of new ventures. By so doing, it will embolden a new generation of smart but cautious entrepreneurs to pursue their dreams. All of us will benefit from the creativity this will unleash. The new financial instruments won't protect people from their own stupid mistakes. Instead, these hedges will insulate people from events outside their control that could affect their chosen careers, industries, or even countries. That will make people more the masters of their own fates.

''It will encourage people to take risks, because the risks will no longer be concentrated exclusively on them,'' says Yale University economist Robert J. Shiller, author of a 1993 book on the topic called Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks.

To see how this will work, consider the example of a hedge against choosing the wrong career. Today, a young man or woman could spend years training to become a cardiac surgeon, only to be whacked by, say, a harsh new malpractice law that makes cardiac surgery an unattractive profession. Uncontrollable risks of that sort are undoubtedly frightening away some young people who would have made excellent cardiac surgeons--producing a loss for society as a whole.

Now imagine that in the 21st century, there will be a market where hedgers and speculators meet to trade ''cardiac-surgeon-income futures,'' analogous to today's futures contracts on soybeans and interest rates. Our newly minted surgeon could short-sell some of those futures--in effect, betting against her own profession. If cardiac surgery is hurt by some external event, profits on her short sale would compensate for the decline in her salary. If she doesn't want to mess with short-selling, she could simply deal with an insurer that would then lay off its own risk in the futures market. Once she is hedged, her future income will reflect her own skills in the operating room rather than, say, some piece of legislation.

Career hedges are just one example of this broader application of risk-buffering. It will also be possible to hedge against a decline in the value of houses in your area. People might be more willing to spruce up their homes or buy houses in chancier neighborhoods if they could protect themselves against a slide in the local market.

Or how about a hedge based on national economic performance? An Argentine could receive a payoff if Argentina's economy hit the skids. That might encourage bright people to build a life in Argentina rather than emigrating.

Hedging a career, a neighborhood, or a country may sound exotic. But it's no more than a 21st century twist on the old injunction that you shouldn't keep all your eggs in one basket.

By PETER COY

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