161–170 of 328 posts
The comments here are a big let down. Just people opining glibly on the title. I hoped for better.
Earlier quoted context omitted.
> Insurance is primarily for major events. The things at the extreme upper end of the bell curve That's how it should be, but isn't because all insurance contracts cap the maximum insured amount. So that's absolutely NOT the "extreme upper end of the bell", not at all.
There are unlimited umbrella policies, but practically past 1 million or it is probably cheaper to declare bankruptcy than pay the additional premiums.
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…
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…
I think part of the problem is the unseen costs of long-term hire cars, injury compensation and outright fraud that has become an everyday expense that someone has to pick up the tab for?
Earlier quoted context omitted.
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 th…
In other words it’s no longer like a bet, it’s like a discount plan. But the problem is that the complexity of introducing a third party payer who doesn’t want to pay, and a consumer who has no incentive to self regulate consumption, means that the costs spiral up and up.
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…
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…
https://two-wrongs.com/the-misunderstood-kelly-criterion.htm...
The thing that makes or breaks the Kelly criterion is the correct evaluation of risk. If the risk is incorrect then it is garbage-in garbage-out. Due to this uncertainty, people tend to use fractional Kelly criterion.
For a car example, my current car price is a significant proportion of my total wealth and the risk of totalling it is perceived by me to be high, so I pay insurance. I say perceived because in 15 years of driving I never totalled a car.
But now that I understand the Kelly criterion I will account for how expensive it is proportionately to my wealth and figure the cutoff price where I need to get total coverage insurance and how much it costs. It also explains by cell phone insurance and similar are normally not a good deal, the insured asset is worth a small proportion of my wealth.
If there is an event that happens 1 time in 100 that costs you $100k and you pay $1.05k to insure against that would have a negative expected value in money terms but positive expected value in utility of money terms. It's hard to model utility of money curve, economists often use logarithm for convenience (it's easy to do math on logarithms) but whatever the specifics we know the function is concave. No one rational is going to flip a coin for their net worth or any significant part of it for example.
With this in mind insurance is a service worth paying for as long as the fee is lower than utility you gain from it. In a theoretical case that the fee is 0, that is expected value of money when taking the insurance is 0 you should always take it. In the opening example of 1 in 100 event that would be $1k USD fee.
Gambling is the opposite: you voluntarily stake money on event that wouldn't otherwise affect your financial situation. This decreases combined utility of you and your counter-party. Utility is higher if you both have $1000 than if one of you have $0 and the other $2000 for example.
Gambling, like excessive drinking or other activities that hurt the population as a whole is viewed as immoral by many moral systems. I think it's hard to argue against that - the more gambling there is the worse off the population is going to be. Not so with insurance.
Earlier quoted context omitted.
I expect this is true depending on where you are, and the quality of roads you drive on. I've been driving for 36 years now and have never had a tired damaged more than the very occasional puncture. I could go out tomorrow and damage one, but by this point I can consider myself "self insured".
> I've been driving for 36 years now and have never had a tired damaged more than the very occasional puncture. I typically go through a tire a year. The city I live in (Seattle) will pay to replace the tire if the loss was due to a pot hole, but you have to take a picture of the pot hole, which can be a bit hard to do in many circumstances. There have been years where I've paid more for tires than for gas. :/
Insurance can benefit the insured and insurer according to Kelly’s criterion depending on respective wealth and risk probability. Have a look at this blog for intuitive examples where insurance is beneficial for both the insurer and insured. https://two-wrongs.com/the-misunderstood-kelly-criterion.htm... The thing that makes or breaks the Kelly criterion is the correct evaluation of risk. If the risk is incorrect the…