it seems obvious to me...
one is a guard against losing stuff you have
the other is a short cut to riches you don't
What makes gambling wrong but insurance right? (2017)
211–220 of 328 posts
Re: What makes gambling wrong but insurance right? (2017)
#212The example of financial derivatives is really strong: on the market it's basically a form of gambling. Will this thing go up and down? Noone knows, but you're a genius if it works and a loser if not. But if you own something and hedge by e.g. getting puts it's a form of insurance.
So the instrument is the same, it's the intent that makes it different.
Re: What makes gambling wrong but insurance right? (2017)
#213Earlier quoted context omitted.
Having insurance is gambling, but not having insurance is also gambling. This is because life itself is a gamble. We don't know what the future holds and we have the choice to insure or gamble on just about any aspect of our lives. Insurance companies are just like casinos in that the math always favours them if you look at a sufficiently large sample size. Even so, some things are still worth insuring. e.g. Your hou…
What about the gamble that the whole thing is a scam from the beginning? If they are going to fight tooth and nail to never payout anyway its all insanity. Also how could insurance ever be a "for profit" business? That could never work. Profit means straight up planning scam right from the beginning, hoping that a big enough payout triggers business failure and you dont have to pay out anyone, yippee free and clear r…
Spot the person who has no idea how the insurance industry actually operates or is regulated.
Re: What makes gambling wrong but insurance right? (2017)
#214I feel the article as well as most of the comments miss the most important difference between the two. Insurance, assuming the fee isn't too high, increases your utility of money while gambling decrease it. 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 te…
Hm I don't follow. Could you please define "expected value in money terms" vs "expected value in utility of money terms"
A simpler way of explaining it is that both activities have a negative expected value but insurance usually reduces variance while gambling increases it.
In the context of money variance is usually synonymous with instability and unpredictability. Those things are bad and it’s worth paying a fairly priced premium to avoid them.
In simple math terms gambling is essentially the opposite dynamic. Of course things that are unpredictable can be entertaining, which is why gambling is correctly viewed as a form of entertainment.
Re: What makes gambling wrong but insurance right? (2017)
#215I feel the article as well as most of the comments miss the most important difference between the two. Insurance, assuming the fee isn't too high, increases your utility of money while gambling decrease it. 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 te…
> This decreases combined utility of you and your counter-party. The counterparty tends to have an edge. Roulettes have zeros, bookies get a cut, etc. I guess on a poker table everyone thinks that they have an edge but they can't all be right.
Also casinos typically take rakes in poker
Re: What makes gambling wrong but insurance right? (2017)
#216Earlier quoted context omitted.
>>Insurance is invariably a "for profit" enterprise so the utility or return across all participants has to be lower than the value invested/paid. This is wrong and the reason you are confused about the argument. If insurance is priced fairly all parties benefit utility wise. It's true that the buyer has negative expected value money wise and the seller positive one but as the utility function is concave both parties…
Insurance is not always a for profit enterprise. There are very many “mutuals” who are literally owned by their policy holders.
There is still some cost to the policy holders, though: they still need to pay for the overhead of managing the policies (generally realized via paying the salaries of some employees).
Re: What makes gambling wrong but insurance right? (2017)
#217Earlier quoted context omitted.
> 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.
Right, people gamble on houses to provide them shelter. Insurance hedges against the risk of losing.
Re: What makes gambling wrong but insurance right? (2017)
#218Earlier quoted context omitted.
Hm I don't follow. Could you please define "expected value in money terms" vs "expected value in utility of money terms"
Utility is quite a complex and badly defined concept - its also central to economics. The idea is that the value to you of an extra amount of money goes down as you have more. i.e. getting £10k could be life changing for a poor person, unnoticeable to a rich one. https://moneyterms.co.uk/utility/ The expected value is the amount multiplied by the chance of getting it. SO if you have a 50% chance of getting £1,000 the…
Ive never seen a definition of utility which wasn't self referencing.
It's a highly unscientific concept.
Re: What makes gambling wrong but insurance right? (2017)
#219Insurance 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…
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Re: What makes gambling wrong but insurance right? (2017)
#220Insurance 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…
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