Because people are risk-averse, risky deals are discouraged and the market awards appropriate risk premiums as compensation for incremental risk.

"The truth is that investors’ risk-averseness fluctuates between too much and too little. When it’s the latter, skepticism and conservatism dry up, due diligence is inadequate, risky deals are easy to pull off, and compensation for risk bearing usually turns out to be insufficient. Investors absolutely cannot depend on the market to discipline itself."