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

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

#251

Post by bluecalm » Sun, Jun 09, 2024, 1:53 PM UTC

beaeglebeachedd wrote: post #228

CPLX wrote: post #214

Earlier 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…

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.

Another example could be needing money for life saving expensive treatment for either yourself or a loved one.

That's why I mentioned that "avoiding variance" in itself is not a good argument. You avoid it for a reason and that reason is that (u(x - a) + (u + a)) / 2 < u(x) for vast majority of life scenarios.

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

#252

Post by pydry » Sun, Jun 09, 2024, 2:46 PM UTC

JumpCrisscross wrote: post #242

pydry wrote: post #218

Earlier quoted context omitted.

Ive never seen a definition of utility which wasn't self referencing. It's a highly unscientific concept.

> never seen a definition of utility which wasn't self referencing It’s analogous to “holes” in semiconductors or virtual particles. You can’t directly observe it. But it’s an intuitive notion that makes many calculations easier. Critically, there are several valid definitions of utility, e.g. the von Neumann–Morgenstern (VNM) utility theorem [1] and revealed preference [2]. Each has its own axioms, defined with vary…

"Utility" isnt axiomatic or analogous to holes. It's "vibes" dressed up in sciency sounding language.

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

#253

Post by pydry » Sun, Jun 09, 2024, 2:49 PM UTC

bluecalm wrote: post #226

pydry wrote: post #218

Earlier quoted context omitted.

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 h…

>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

Precisely. Like when a priest says that "love" is "god" and "god" is "love".

Plenty of our language is deeply unscientific.

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

#254

Post by ozgrakkurt » Sun, Jun 09, 2024, 2:51 PM UTC

JackFr wrote: post #210

bluecalm wrote: post #205

Earlier 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.

Yes people can come together at their home and gamble as well

It is just the same can’t find any logical argument that makes it different in any post. Feels like everyone is trying to justify it

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

#255

Post by mrazomor » Sun, Jun 09, 2024, 2:59 PM UTC

bluecalm wrote: post #168

I 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…

> With this in mind insurance is a service worth paying for as long as the fee is lower than utility you gain from it.

Why even consider the insurance as investment (money increasing tool)? A stock market would get you higher gains at more controlled risk.

The 3rd best financial advice I got is about insurances: "Pay the insurance only if the negative outcome would cause you a significant financial loss" (and is of relatively high probability)

So, insuring a house from fire etc. makes sense. But, my $2k bike is not worth covering (from my PoV). Or, if we go to extreme, my (unnecessary) motorbike/boat/jet ski as if they are destroyed, I can continue living without them (a bit of exaggerated example, but I hope you get my point). Same for insuring a house from unlikely events.

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

#256

Post by kgwgk » Sun, Jun 09, 2024, 3:06 PM UTC

pydry wrote: post #252

JumpCrisscross wrote: post #242

Earlier quoted context omitted.

> never seen a definition of utility which wasn't self referencing It’s analogous to “holes” in semiconductors or virtual particles. You can’t directly observe it. But it’s an intuitive notion that makes many calculations easier. Critically, there are several valid definitions of utility, e.g. the von Neumann–Morgenstern (VNM) utility theorem [1] and revealed preference [2]. Each has its own axioms, defined with vary…

"Utility" isnt axiomatic or analogous to holes. It's "vibes" dressed up in sciency sounding language.

https://en.wikipedia.org/wiki/Utility_representation_theorem

"In economics, a utility representation theorem asserts that, under certain conditions, a preference ordering can be represented by a real-valued utility function, such that option A is preferred to option B if and only if the utility of A is larger than that of B."

You may challenge the assumptions but otherwise it's mathematics.

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

#257

Post by kgwgk » Sun, Jun 09, 2024, 3:15 PM UTC

mrazomor wrote: post #255

bluecalm wrote: post #168

I 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…

> With this in mind insurance is a service worth paying for as long as the fee is lower than utility you gain from it. Why even consider the insurance as investment (money increasing tool)? A stock market would get you higher gains at more controlled risk. The 3rd best financial advice I got is about insurances: "Pay the insurance only if the negative outcome would cause you a significant financial loss" (and is of r…

> Why even consider the insurance as investment (money increasing tool)?

Most people wouldn't consider it in that way - unless the risk they're insuring is terribly mispriced or they plan to do some insurance fraud.

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

#258

Post by scott_w » Sun, Jun 09, 2024, 3:25 PM UTC

beaeglebeachedd wrote: post #231

scott_w wrote: post #178

I think the main difference is: In gambling, you want the payout. In insurance, you probably don’t. Why? Because you don’t want that bad thing to trigger it (illness, property damage, death).

A smart gambler might not care about the payout. For instance, if I have a business that partially depends on election of a candidate I may bet against them winning so i recoup my investment if they lose.

That’s using gambling to hedge your business position, not insuring your business against the potential loss. The bet is only tangentially related your business. If your candidate wins but the revenue you thought you’d get doesn’t materialise, you’d probably wish you’d won your bet instead.

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

#259

Post by Mathnerd314 » Sun, Jun 09, 2024, 3:28 PM UTC

e_y_ wrote: post #162

Mathnerd314 wrote: post #153

Earlier quoted context omitted.

There are unlimited umbrella policies, but practically past 1 million or it is probably cheaper to declare bankruptcy than pay the additional premiums.

Wouldn't you rather not lose $1+ million? It costs something like $400/year per $1M coverage which is hardly breaking the bank.

$400/year is a new laptop or something, if you spend the money then the creditors can't take it.

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

#260

Post by scott_w » Sun, Jun 09, 2024, 3:29 PM UTC

mcculley wrote: post #249

scott_w wrote: post #174

Earlier quoted context omitted.

> 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. The first part is correct but a consumer that “doesn't self regulate consumption” is not a thing in medicine. People don’t take drugs for fun. People don’t injure themselves more in public healthcare systems. In fa…

People eating more than they should, getting diabetes, and then consuming more medical services is a form of poor regulation of consumption. The overapplication of OxyContin is another form of unregulated consumption. Now we have the semaglutides and will see the same effect.

The USA has a 38% obesity rate vs the UK at 29% (for men). Given both exist quite far apart on the public/private healthcare debate, I don’t see how this supports your argument at all.

Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7670332/

I’m not going to debate the others because I don’t know much about them and, since your argument fell apart at light prodding, I don’t think you do, either.