Gambling isn't wrong. Gambling is stupid . Hedging risk is not stupid. That's the difference.
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What makes gambling wrong but insurance right? (2017)
221–230 of 328 posts
Re: What makes gambling wrong but insurance right? (2017)
#222This article is really interesting and explains the common origins of gambling and insurance, I had no idea that Lloyds of London began as essentially a gambling ring (and before that a coffee shop, another fascinating topic in the history of London and Paris especially and the world in general). Also a great line about governments being little more than mutual aid societies. The comments here are a big let down. Jus…
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Re: What makes gambling wrong but insurance right? (2017)
#223Earlier quoted context omitted.
Bicycle insurance is mostly useless unfortunately. We really need to do something about it if bicycles are going to be practical for more people. Cars get probably 100x the Police resource dedicated to them compared to bikes.
Bikes were not meant to be $1000+. Get a cheap one and set aside a monthly amount for replacing it. Don't get insurance on it. Get into an accident? You should already have health insurance to cover it.
They definitely don't need to be that expensive, but anything less than 500 credits isn't going to be very nice to ride. The sweet spot is something like 600-700 which is non-negligible.
Re: What makes gambling wrong but insurance right? (2017)
#224Earlier quoted context omitted.
> 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
index funds also take a fee
Re: What makes gambling wrong but insurance right? (2017)
#225Easy. You can insure only insurable interest. Your house can catch fire at some point in the next 20 years, and Dallas can beat Boston the NBA finals. Both outcomes are unknown now, and therefore probabilistic events. If you buy fire insurance on your house you can try to rephrase that you placed a "bet" that your house will catch fire. But it's a stretch. If you bet on Dallas, how do you spin it to say it's insurance? Can you claim that you are a Boston fan and you insure against the emotional hurt if Boston loses?
Re: What makes gambling wrong but insurance right? (2017)
#226Earlier quoted context omitted.
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.
Utility of money is just how much value one (an individual or entity) can derive from having x amount of money. Utility and value might be defined by self referencing each other but that's true for many other concepts or words in a language for that matter. It doesn't make it problematic or unscientific.
The point is that it matters how much certain amount of money or wealth is worth for you not how much wealth you have. It's an important point as it explains why calculations purely in money terms are useless for making financial decisions (as seen in example of insurance)
Re: What makes gambling wrong but insurance right? (2017)
#227Earlier 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"
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 a…
But why is reducing variance desirable? It's exactly because there is utility of money function which is concave. Variance being undesirable comes from the shape of utility of money function.
Re: What makes gambling wrong but insurance right? (2017)
#228Earlier 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"
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 a…
Variance can be good though. Imagine you want some expensive service like a waterline for your house that's difficult to steal but you live under rules of gangsters or oppressive government so holding anything more than a little money at a time is risky.
You gamble every paycheck knowing eventually you will get a big payout. You quickly pay for the waterline and now you don't have to walk 300 ft to the well everyday.
Re: What makes gambling wrong but insurance right? (2017)
#229I 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 is the reason I always play the lottery. I won't miss $2 a week or whatever, but I will notice if I win an 8+ figure payout.
Re: What makes gambling wrong but insurance right? (2017)
#230Earlier quoted context omitted.
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 a…
But why is reducing variance desirable? It's exactly because there is utility of money function which is concave. Variance being undesirable comes from the shape of utility of money function.
And at some point that function bends hard once you hit bankruptcy, for instance many places in US you go to jail if you run out of money, especially if you have children with someone to whom you're not currently married.