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What makes gambling wrong but insurance right? (2017)

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Re: What makes gambling wrong but insurance right? (2017)

#11

Post by from-nibly »

Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

First off thats just reinforcing the grayness of the difference. Where exactly on which exact bell curve does gambling stop and insurance start?

Second, the one thats even more ambiguous is insurance from the perspective of the insurer. It's just gambling with a payment plan, that HOPEFULLY doesn't turn into a ponzi scheme.

Re: What makes gambling wrong but insurance right? (2017)

#12

Post by slt2021 »

Betting is taking on some defined risk with probability of payoff.

Insurance is offloading part of the risk to the third-party (Insurance underwriter).

For example I can bet on the roulette on the Black. I can also insure(hedge) against Zero by paying insurance premium (1/37 of my bet on Black).

that way I bet on Black and have 1:1 odds, and in case of Zero my insurance will pay out 37:1 completely paying back my bet on Black.

of course 1/37's of my bet will be gone most of the time and this is exactly the house edge in roulette.

in real-life you probably don't want to bet most of the times, but in some obscure low probability scenarios - you would want to offload that low probability event to insurance.

main difference is you expect insurance to pay out rarely, but in betting you expect to payout more regularly.

Re: What makes gambling wrong but insurance right? (2017)

#13

Post by bee_rider »

from-nibly wrote: post #11
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

First off thats just reinforcing the grayness of the difference. Where exactly on which exact bell curve does gambling stop and insurance start? Second, the one thats even more ambiguous is insurance from the perspective of the insurer. It's just gambling with a payment plan, that HOPEFULLY doesn't turn into a ponzi scheme.

I think they are on different sides of 50% probability. Insurance helps mitigate a low-probability risk. Gambling provides a low-probability chance of a big reward.

Socially the presence of a small number of really destitute people is a problem, so we moralize the process to prevent it as “bad.” The presence of a small number of really rich people is, like, neutral or negative, so we don’t moralize the a thing they produces them as good.

It is a bit weird that we don’t moralize the rich as good in this case, given that we often do do that. Not sure what’s up there. Maybe gambling is uncomfortable because produces rich that aren’t seen as deserving somehow.

Re: What makes gambling wrong but insurance right? (2017)

#14

Post by NegativeK »

Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

> Gambling is all about risking it all.

There are also plenty of people who can maintain control of their finances in the face of internal gambling biases and manipulation from the other parties (like casinos.) I don't gamble, but I do believe that most gamblers are in the middle of the extremes.

You could overcommit to insurance products/premiums, but I think there's more regulation there and less of an addictive aspect -- which is why we don't really hear about it.

Re: What makes gambling wrong but insurance right? (2017)

#15

Post by BugsJustFindMe »

Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

> Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly.

Counter: your belief about insurance is inverted from reality because your notion of what constitutes winning vs losing at insurance is backwards.

You lose at insurance by not having any circumstances that lead to payout. You win at insurance by having it actually do something for you. Dying is losing at life, but it's winning at life insurance.

Buying insurance is very literally betting that something expensive/bad will happen sooner rather than later or never, where the expected payout exceeds the expected cost to you. Selling insurance is betting the opposite, while, exactly like a casino, making sure that the sum of inflow stays greater than the sum of outflow.

> Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that

This ignores the fact that many (most?) personal insurances are paid over and over and over and over again, because when you stop paying they stop paying too, and they all always cost more than they expect to pay. Every month you pay for health insurance and you don't get sick, that amount you spent is lost. Every time you insure an electrical appliance that doesn't break, the money you spent is lost. This is exactly like any other gambling loss. You gloss over that part by saying "but you have your health and that's good", which is absolutely true, but perversely not what you paid for.

Re: What makes gambling wrong but insurance right? (2017)

#16

Post by DaveExeter »

Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

I would express it differently.

With insurance, you are guarantee to lose. To insure against a 10K risk, you have to pay 20K. 50% of your premium goes towards staff, advertising, profit, etc.

But you reduce variance.

Re: What makes gambling wrong but insurance right? (2017)

#17

Post by Almondsetat »

from-nibly wrote: post #11
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

First off thats just reinforcing the grayness of the difference. Where exactly on which exact bell curve does gambling stop and insurance start? Second, the one thats even more ambiguous is insurance from the perspective of the insurer. It's just gambling with a payment plan, that HOPEFULLY doesn't turn into a ponzi scheme.

>Where exactly on which exact bell curve does gambling stop and insurance start?

I don't think it has to come from me that the world isn't black and white.

>It's just gambling with a payment plan

If it's all so gray, why couldn't you say "gambling is just a riskier insurance" then? You only consider one of the two possible directions, namely the one that puts insurance under a bad light.

Re: What makes gambling wrong but insurance right? (2017)

#18

Post by Almondsetat »

DaveExeter wrote: post #16
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

I would express it differently. With insurance, you are guarantee to lose. To insure against a 10K risk, you have to pay 20K. 50% of your premium goes towards staff, advertising, profit, etc. But you reduce variance.

>But you reduce variance.

Yes, and turns out that having more consistent results is what keeps the economy going.

Also, the only reason gambling exist is because you are guaranteed to lose. The house always wins, statistically.

Re: What makes gambling wrong but insurance right? (2017)

#19

Post by Almondsetat »

NegativeK wrote: post #14
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

> Gambling is all about risking it all. There are also plenty of people who can maintain control of their finances in the face of internal gambling biases and manipulation from the other parties (like casinos.) I don't gamble, but I do believe that most gamblers are in the middle of the extremes. You could overcommit to insurance products/premiums, but I think there's more regulation there and less of an addictive as…

"Risking it all" was not referring to being a gambling addict. It simply meant that if you put 10k on black and the ball goes on red, you lose all of the 10k

Re: What makes gambling wrong but insurance right? (2017)

#20

Post by PartiallyTyped »

bee_rider wrote: post #10
philipov wrote: post #4

Gambling isn't wrong. Gambling is stupid . Hedging risk is not stupid. That's the difference.

IMO gambling gets a bad reputation by people who only look at the expected value. If you place a bet where the cost is low enough that it won’t make a qualitative difference to your life, and the possible (not expected) reward is such that it would make a qualitative difference in your life, then you might have maximized the probability of achieving that qualitative difference, despite lowering your expected value. T…

I did this with GME shares in the original run. The profits helped me finish grad school. The money I bet wasn’t enough to cause serious issues on loss but the payoff was enormous.

This is related to utility I suppose.

Could we say that the “expected” utility of certain gambles is high enough to make them have higher utility than not betting?

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