I remember when I was in high school I learned about expected utility and went around telling everyone they were idiots for buying insurance. Then I learned about risk aversion and felt really dumb...
What makes gambling wrong but insurance right? (2017)
131–140 of 328 posts
Re: What makes gambling wrong but insurance right? (2017)
#132Earlier quoted context omitted.
> 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 d…
The difference between insurance and gambling is about what happens to your risk - whether it's a hedge or not. When you buy insurance, you pay a premium to make you whole should a random event occur in the future. You exchange a payment for certainty about future cash flows with respect to the insured risk. When you place a bet, you do the opposite. You exchange a payment for uncertainty about future cash flows with…
Mind you, in the US, you are not allowed to take a life insurance on a person you don’t know (but you are allowed to buy a life insurance that person had taken on themselves)
Re: What makes gambling wrong but insurance right? (2017)
#133Gambling isn't wrong. Gambling is stupid . Hedging risk is not stupid. That's the difference.
I would say that offering gambling to people, knowing that many are susceptible to the addiction cycle for whatever reasons, is what is the most wrong in this equation I think
But then again you could also argue that those offering the gambling are themselves merely victims of a different addiction cycle involving greed or fear or whatnot
Re: What makes gambling wrong but insurance right? (2017)
#134Earlier quoted context omitted.
> The benefit that insurance conveys for the person insured is not that it is supposed to make money. Presuming you mean ending with more money than you started, gambling isn't either. Pay in vs pay out has no relation whatsoever to that except in passing. > It is risk avoidance. These are the same thing dressed in different names. There's only no making money on health insurance in the sense that you don't get to ke…
> There's only no making money on health insurance Health "insurance" is mostly not insurance: it's a healthcare plan for periodic maintenance and minor incidents combined with an insurance plan for large and catastrophic incidences. When I buy car insurance, they don't give me 4 free (or even discounted) oil changes a year. Car insurance exists for large and catastrophic incidences. Same with home insurance. Actual…
> Health "insurance" is mostly not insurance: it's a healthcare plan for periodic maintenance and minor incidents combined with an insurance plan for large and catastrophic incidences.
Precisely.
You/your employer pay a premium.
Then you have a deductible.
Then your "insurance" company has the unmitigated gall to also include "co-pays" (which are on top of your deductible, as well as after meeting it), AND "co-insurance" (even if you've already met your deductible)...
AND then they'll refer to it as "your contribution to your healthcare costs". I suppose that is somewhat accurate but still...
Imagine your car gets totaled. Your insurer says "Hey, we're going to pay out $25K for your vehicle. So you have a $1,000 deductible, so that's $24,000, and then your copay for a total loss is $2,000, that brings us down to $22,000, and for total losses, your coinsurance as your contribution for your vehicle coverage is 20% which is $5,000 so here's a check for $17,000."
I know it exists in certain very limited contexts, but if it weren't for all the regulatory capture, I could easily see companies that say "We'll negotiate bulk discounts with these providers. Everything else is on you. Pay for what you use."
Re: What makes gambling wrong but insurance right? (2017)
#135Insurance 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…
So far, I have made use of my car insurance policy two times. Each time I regretted it. First was for a rodent that somehow got into the space between the roof and the headliner, then died and made a mess. The second was for hitting a pothole at highway speed, which damaged a wheel and its control arm. In both cases, the insurance company paid the minimum they had to. For the rodent, sure they paid for the ceiling to…
Insurance is primarily for major events. The things at the extreme upper end of the bell curve.
For example, you've hit another car (possibly an expensive one) and caused tens of thousands of dollars in damage. Or you've inured a passenger and caused hundreds of thousands of dollars of hospital bills.
The kinds of events that would financially ruin you, or at least seriously set you back on your life goals. Or, in the case of state-mandated insurance, where there's a high likelihood you wouldn't be able to make the other party whole.
You can use it on smaller things if you insist (and your rates will go up), but that's not really what it's for.
Personally, both the events you described fall under my definition of one-off maintenance ("things that are an unpredictable yet unavoidable cost of owning a vehicle") and that I'd expect to pay for out of pocket.
Re: What makes gambling wrong but insurance right? (2017)
#136Insurance 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…
So far, I have made use of my car insurance policy two times. Each time I regretted it. First was for a rodent that somehow got into the space between the roof and the headliner, then died and made a mess. The second was for hitting a pothole at highway speed, which damaged a wheel and its control arm. In both cases, the insurance company paid the minimum they had to. For the rodent, sure they paid for the ceiling to…
One way to solve this problem is to be part of mutual insurance instead of a private company. Not sure if that is an available option for you.
Re: What makes gambling wrong but insurance right? (2017)
#137Earlier quoted context omitted.
> That is true AND it is not what you paid for. You're qubbling. You paid for replacement of the income and goods and services you can no longer provide, in the event of your death. Sure, that doesn't replace you in the eyes of your beneficiaries (assuming we're not taking the extremely cynical viewpoint about that), but of course nothing can replace you in that sense. However, if your beneficiaries are financially s…
No, the other poster is actually right. In betting on outcomes, there are two roles - bet (“long”) and lay (“short”). An insurance company is exactly a bookmaker; they are buying a bunch of risk and being paid a vig (or in the case of long-duration bets and life insurance, getting the carry) on each of those risks. This is indistinguishable from insurance, particularly when the beneficiary of insurance isn’t the subj…
In general, you are not able to buy insurance for more than the value of something. If you could, that would be a form of gambling. But up until that line it's anti-gambling.
Buying a position out of nowhere is gambling. Buying a position to directly counteract the position you already have is not gambling.
If you short 50 shares of a stock when you already owned 80 shares, you are doing the opposite of gambling. You are reducing your position.
Re: What makes gambling wrong but insurance right? (2017)
#138It seems obvious? Insurance means you pay to protect against a loss, gambling is paying to potentially gain? Most insurers will not insure you unless you are at risk of a loss. For example, you can't buy a homeowners policy for a house you don't own.
> Most insurers will not insure you unless you are at risk of a loss. This is why it is non-obvious. There is no risk of loss without a gamble. As you point out, insurance only comes into play when you are gambling – you cannot insure that which you have not gambled on. So if gambling is wrong, why is a tool to help you gamble right?
> you cannot insure that which you have not gambled on
That doesn't follow at all. People don't buy houses to "gamble it doesn't burn down".
Not in the sense of the word "gamble" is being used.
Re: What makes gambling wrong but insurance right? (2017)
#139Earlier quoted context omitted.
The difference between insurance and gambling is about what happens to your risk - whether it's a hedge or not. When you buy insurance, you pay a premium to make you whole should a random event occur in the future. You exchange a payment for certainty about future cash flows with respect to the insured risk. When you place a bet, you do the opposite. You exchange a payment for uncertainty about future cash flows with…
Mind you, in the US, you are not allowed to take a life insurance on a person you don’t know (but you are allowed to buy a life insurance that person had taken on themselves)
Cue flashbacks to Walmart buying life insurance for its employees (with Walmart as the beneficiary)...
... and the oh-so-charming way they referred to it at head office: "Dead Peasants Insurance".
Re: What makes gambling wrong but insurance right? (2017)
#140Insurance 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…
So far, I have made use of my car insurance policy two times. Each time I regretted it. First was for a rodent that somehow got into the space between the roof and the headliner, then died and made a mess. The second was for hitting a pothole at highway speed, which damaged a wheel and its control arm. In both cases, the insurance company paid the minimum they had to. For the rodent, sure they paid for the ceiling to…
You can get a liability only policy.