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Micromort

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Re: Micromort

#61

Post by gbog »

shock-value wrote: post #51
gbog wrote: post #44

Earlier quoted context omitted.

Yes but a fair insurance would be the exact price of the risk leveled among insured, plus a small processing fee. There should be not one penny left for luxurious offices or prestigious ads or art mecenat. Lottery pleasure is empty. Play poker with friends, you may loose money but at least you get friends. The problem pointed in Kahneman book is that we are irrational, and (AND) it's usually the less irrational among…

> plus a small processing fee Okay, but small is relative. For example, an insurance company has to pay for investigators, the number of which would likely scale linearly with customers. Nice offices and an advertising presence are also likely necessary to entice and maintain customers, probably more-so an an industry like insurance in which there aren't many tangible differentiators between competitors (see Coke vs…

It is different in this that you can't evaluate the price of the thing you buy. It's like contemporary art if you will, but art is more obviously a scam, while insurance have an aura of solidity and serious.

Re: Micromort

#62

Post by Houshalter »

gbog wrote: post #60
Houshalter wrote: post #57

Earlier quoted context omitted.

Another reason is what I believe economists call it "the law of decreasing marginal utility". Every extra dollar you have is (usually) worth less and less, since you pay for the things you want/need the most first, and money is only worth what you buy with it. Your expected utility is not your expected dollars. The average person will pay more into insurance than they get out of it. However it's worth it for the smal…

My point is not that insurance in itself is a scam. It would be rational to pay a small fee to a common account and get back much more when needed. It is how most communities work. My point is that the current insurance system and price is a scam, because it is much too expensive and covers to many silly cases. That's because it is very hard for human beings to evaluate the risk of something rare and its price. While…

The buyer never knows the real price in any industry. How many people know how much it takes to build a factory, to pay the wages of all the workers, transportation costs, material costs, etc, etc. Competition is supposed to lower the price to it's actual amount. I don't see why this isn't true in the insurance industry.

Re: Micromort

#63

Post by sien »

The Micromort concept is explored thoroughly and very enjoyable in the book 'The Normal Chronicles' by David Blastland and Michael Spiegelhalter. It's well worth checking out.

Blastland was one of the creators of the excellent 'More or Less' on the BBC that looks at how numbers are used and mostly abused by the media, politicians and everyone else.

Spiegelhalter is a prof of stats.

The book addresses a number of the criticisms that have been leveled at the concept in comments here. They also talk about the 'microlife' which is what you get by exercising or whatever. They also acknowledge the problems with these ideas as well.

Re: Micromort

#64

Post by ColinWright »

sien wrote: post #63

The Micromort concept is explored thoroughly and very enjoyable in the book 'The Normal Chronicles' by David Blastland and Michael Spiegelhalter. It's well worth checking out. Blastland was one of the creators of the excellent 'More or Less' on the BBC that looks at how numbers are used and mostly abused by the media, politicians and everyone else. Spiegelhalter is a prof of stats. The book addresses a number of the…

Er, it's David Spiegelhalter. He's a friend/colleague of mine.

While on the subject, "More or Less" is quite a good program, and fun to participate in.

Re: Micromort

#65

Post by ygra »

aaron695 wrote: post #56
batiudrami wrote: post #53

Earlier quoted context omitted.

I agree with both your points there, but disagree with the premise that insurance is a scam - the insurance companies provide a valuable service, and they charge what people will pay - the way any reasonable business is going to behave. From there, it's up to you to determine whether it's worth it. I personally don't have health insurance (though I live in a country with universal healthcare), but I have 3rd-party ca…

But why are you worried about driving into a Lamborghini and not the fact it would mean you've had a car accident and you could be dead? This to me is where our perceived realities differ with real life. Spending the money on defensive driving and/or car safety makes much more sense, but we can only see the future where the accident happens (And we survive) not all the accidents we can stop. I have no idea about your…

non-lethal car accidents happen more often than those with casualties. And they often are fairly expensive, especially if you manage to involve more than your own car. That's not to say that you shouldn't drive carefully (and I guess your insurance company certainly raises the price once you start driving into other cars twice a month).

Re: Micromort

#66

Post by pgeorgi »

aaron695 wrote: post #54
gbog wrote: post #18

It should be noted that used in Thinking Fast and Slow context this micromort induce can be used to show how much we human have very hard time grasping low probability events. All the lottery and insurance business is just a scam against us taking advantage of this miss computation of micro risks.

Agreed, and the fact people here think insurance is not a scam is actually proving your point how they can't measure risks well even when pointed out to them. If you house burns down, sure that's reasonably catastrophically bad, But if you house burns down, there's a fair chance it'll happen at night, and there's is a fair chance you'll die. Don't spend money on insurance, spend it on stopping your house burning down…

> Don't spend money on insurance, spend it on stopping your house burning down. Or do both (it's funny how IT types love those dichtomies).

And if you tell your insurance about your extra measures for fire safety, they likely lower your rates. They might even consult you about which fire safety measures are actually useful (and they have the data: data driven fire safety, how does that sound?).

Since fire insurance tends to pay for damage repair when things didn't burn to the ground, they're also useful in situations that are not as life threatening as your example. We had a warehouse burn down in town, and the neighboring house was affected in that the windows on two sides of the house melted enough to be useless. The cost of replacing all those windows can easily exceed an individual's short-term liquidity (a single event might even exceed the rates paid for the insurance over its life-time) - for the insurance that was pocket change.

Re: Micromort

#68

Post by bnegreve »

andrewvc wrote: post #3

A lot of this seems weird. If I imbibe 0.5 liters of wine exactly once in my life I doubt there's any effect. Same for 2 cigarettes. For a lot of things there are thresholds that must be crossed before any effect is created.

Yes, and I believe that's a limit of the concept.

If you smoke 2 cigarettes on one day, chances are that you are actually a smoker and therefore you fall in the category of people that are more likely to die from cancer.

The actual impact of the cigarettes you have smoked isn't really taken into account here, it is the fact that you are likely be a smoker that increases the number of microdeath.

Re: Micromort

#69

Post by fragsworth »

andrewvc wrote: post #3

A lot of this seems weird. If I imbibe 0.5 liters of wine exactly once in my life I doubt there's any effect. Same for 2 cigarettes. For a lot of things there are thresholds that must be crossed before any effect is created.

A counterpoint - the first cigarette you smoke is probably the riskiest one, if you factor in the long-term likelihood of becoming addicted to cigarettes.

Re: Micromort

#70

Post by tankenmate »

SatvikBeri wrote: post #5

The Wikipedia article claims air pollution from living in New York or Boston is 30 times worse than the risk from living with a smoker, though that was in 1979. Presumably air pollution has become much less severe since then. Does anyone know the figure today?

Indeed, the EPA has steadily increased the stringency of particulate matter (PM) standards over the years (these have an impact on car/engine design and fuel (sulphur and nitrogen content)); you can find more information here:

http://www.epa.gov/pm/

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