What makes gambling wrong but insurance right? (2017) • Hacker News Board

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

#21

Post by arnsholt » Sat, Jun 08, 2024, 9:44 PM UTC

arn3n wrote: post #8

hiatus wrote: post #3

Earlier quoted context omitted.

> I've always thought that ethically "right" forms of insurance (and other financial products, like equities, futures, etc.) is that they should enable individuals to take actions that are riskier than they would normally be able to, without unduly increasing the aggregate risk of the entire system. What are some examples of an "ethically right" insurance product?

One example that the article gave is how Ghanan farmers couldn't risk to expand or specialize their crops because of the risk of drought. That feels like a need that could viably be met with sensible insurance. One form of insurance I've always been a fan of in the US, at least, is mandatory car insurance. Considering that the cost of a collision can be extraordinarily high for all parties involved, but because most…

Or simply building fire insurance, so you’re not massively in the hole with no collateral if your house burns down. Which is why lenders require a house to at least be fire insured in my market, as a condition of the mortgage.

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

#22

Post by SeanLuke » Sat, Jun 08, 2024, 9:44 PM UTC

Insurance is just a form of investment. It seems to me that the primary difference between gambling and investment is that the utility of gambling (the expected return over time) is negative, and the utility of investment is positive. And that's it.

In a casino, the gambler is gambling, while the casino is investing.

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

#23

Post by Almondsetat » Sat, Jun 08, 2024, 9:45 PM UTC

BugsJustFindMe wrote: post #15

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 d…

You can choose to live your life without insurance, in which case you have to bear all the damage from bad events but you also benefit fully from good events, or you can live your life with insurance, taking less losses from bad events and getting less from good events.

As said, it simply reduces variance in your life/business. You have to choose if that's how you want to live your life.

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

#24

Post by elijaht » Sat, Jun 08, 2024, 9:48 PM UTC

bee_rider wrote: post #13

from-nibly wrote: post #11

Earlier quoted context omitted.

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 p…

> 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.

Trivially not true- I can wager on a heavy favorite to win at very low payouts

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

#25

Post by scaredginger » Sat, Jun 08, 2024, 9:50 PM UTC

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.

That's not how I'd express it either. Insurance is a positive EV bet on a log-utility basis

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

#26

Post by ghaff » Sat, Jun 08, 2024, 9:58 PM UTC

andoando wrote: post #6

philipov wrote: post #4

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

Insurance is stupid if you are wealthy enough to cover the damages on your own. Insurance for your phone, computer etc for example is certainly stupid for most people.

Generally speaking. I (rarely) buy insurance for things like travel when I have reason to think that I have circumstances that may lead to a higher probability of collecting insurance than the average person automatically buying it has. And I certainly have things like homeowner's insurance where losses could be catastrophic.

But self-insuring for random relatively low-cost events mostly makes little sense for people as it does for companies.

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

#27

Post by xp84 » Sat, Jun 08, 2024, 10:03 PM UTC

Almondsetat wrote: post #19

NegativeK wrote: post #14

Earlier quoted context omitted.

> 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

Same as if I buy a 10-year term life insurance policy and don't die during that decade. I lost all of the full premium paid.

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

#28

Post by karaterobot » Sat, Jun 08, 2024, 10:04 PM UTC

I have to challenge the premise here. I don't hear people saying gambling is wrong and insurance is right. My guess is most people consider gambling a harmless vice most of the time, and consider insurance an annoying fact of life.

Now, people consider problem gambling a problem, but that's a tautology. Many people also think casinos are predatory, but wait 'til you hear what they think about insurance companies.

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

#29

Post by nhggfu » Sat, Jun 08, 2024, 10:04 PM UTC

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" a blanket statement which is not true.

gambling is about risk / reward management.

there are bad gamblers and good gamblers.

a good poker player for example employs bankroll management to avoid going broke due to variance (expected downswings) [1] and their game-play decisions are driven by math.

[1] https://www.primedope.com/poker-variance-calculator/

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

#30

Post by BugsJustFindMe » Sat, Jun 08, 2024, 10:04 PM UTC

Almondsetat wrote: post #23

BugsJustFindMe wrote: post #15

Earlier 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…

You can choose to live your life without insurance, in which case you have to bear all the damage from bad events but you also benefit fully from good events, or you can live your life with insurance, taking less losses from bad events and getting less from good events. As said, it simply reduces variance in your life/business. You have to choose if that's how you want to live your life.

> it simply reduces variance

Mostly I agree. That doesn't make it not gambling though.