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What makes gambling wrong but insurance right? (2017)

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

#261

Post by mcculley »

scott_w wrote: post #260
mcculley wrote: post #249

Earlier quoted context omitted.

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.

I was not making an argument about the public/private healthcare debate. I am objecting to the assertions 'a consumer that “doesn't self regulate consumption” is not a thing in medicine' and 'People don’t take drugs for fun.'

I was similarly convinced that moral hazard in healthcare was not a problem because consumers don't get more healthcare than they need. I know now that this is not the case.

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

#262

Post by ptsneves »

bluecalm wrote: post #170
ptsneves wrote: post #167

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…

It's not about Kelly Criterion specifically but about utility of money in general. Kelly Criterion just solves for maximal utility assuming utility is logarithmic (big assumption often made for convenience).

The logarithmic part comes from the view point of wealth as a geometric progression. I am not an expert, can you point me to a case where it is not logarithmic?

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

#263

Post by ivancho »

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…

You haven't demonstrated most of these assertions. For example, if everyone gambled against everyone else every second, then that system has a pretty good chance of staying close to equilibrium for a long time, whereas your model indicates that the total utility would be depleted almost immediately. Whereas if everyone was fully insured for absolutely every risk in their life and immediately received a replacement of the exact same value on any loss, then the overall system would just steadily trend to all the money ending at the insurer, which doesn't seem like increased total utility

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

#264

Post by scott_w »

mcculley wrote: post #261
scott_w wrote: post #260

Earlier quoted context omitted.

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.

I was not making an argument about the public/private healthcare debate. I am objecting to the assertions 'a consumer that “doesn't self regulate consumption” is not a thing in medicine' and 'People don’t take drugs for fun.' I was similarly convinced that moral hazard in healthcare was not a problem because consumers don't get more healthcare than they need. I know now that this is not the case.

I’m not making a public/private argument either. The full sentence was:

> 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.

Obviously, people do eat to excess, engage in activities that have risk (and die as a result).

Whether you pay or someone else pays does not factor in these decisions, which is why I pointed to obesity rates in UK/USA to demonstrate this. If such moral hazard existed, you’d see lower obesity in the USA than in the UK. You don’t, ergo, it mustn’t.

EDIT: By “take drugs for fun” I’m specifically referring to medical drugs in my original message so removed it from this one (where I conflated with recreational drugs).

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

#265

Post by bluecalm »

ivancho wrote: post #263
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…

You haven't demonstrated most of these assertions. For example, if everyone gambled against everyone else every second, then that system has a pretty good chance of staying close to equilibrium for a long time, whereas your model indicates that the total utility would be depleted almost immediately. Whereas if everyone was fully insured for absolutely every risk in their life and immediately received a replacement of…

>>You haven't demonstrated most of these assertions. For example, if everyone gambled against everyone else every second, then that system has a pretty good chance of staying close to equilibrium for a long time

>>whereas your model indicates that the total utility would be depleted almost i

Can you describe specific assumptions about how that "everyone gambling against everyone else" would look like? I just don't see how my model could predict total utility being depleted very quickly while the model having good chance to stay close to equilibrium.

My model is very simple: apply utility function on wealth. When you model people flipping coins against each other you will see a lot of busted ones and a lot of rich ones pretty quickly and that will mean significant utility decrease.

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

#266

Post by bluecalm »

pydry wrote: post #253
bluecalm wrote: post #226

Earlier quoted context omitted.

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.

It's not like that at all. If you want to argue that one can't define value then I am out. If you admit "value" has well understood meaning then utility function of wealth is just how much value one can derive from it. We usually measure wealth in money for convenience. I really don't know why you are so against it. There might be a lot of nonsense associate with it but the concept itself is pretty simple and useful.

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

#267

Post by pxx »

SeanLuke wrote: post #189
thornewolf wrote: post #31

Earlier quoted context omitted.

insurance is negative EV, like gambling, for the individual.

Actually, insurance is very often positive expected value for the individual. He's paying the insurance company $n, which the company reinvests for even higher expected value, which is how the company makes a profit even when it's paying out to its customers slightly more than they put in. It's essentially the bank model. I suppose that even when insurance is negative, its primary function is to buy protection agains…

you're just renaming things here. the expected real (as opposed to nominal) value is still zero or negative. people don't run insurers out of the kindness of their hearts.

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

#269

Post by mcculley »

scott_w wrote: post #264
mcculley wrote: post #261

Earlier quoted context omitted.

I was not making an argument about the public/private healthcare debate. I am objecting to the assertions 'a consumer that “doesn't self regulate consumption” is not a thing in medicine' and 'People don’t take drugs for fun.' I was similarly convinced that moral hazard in healthcare was not a problem because consumers don't get more healthcare than they need. I know now that this is not the case.

I’m not making a public/private argument either. The full sentence was: > 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. Obviously, people do eat to excess, engage in activities that have risk (and die as a result). Whether you pay or someone else pays does not f…

OxyContin is a medical drug. I have unfortunately had to assist my mother with visits to the "pain clinic" and seen firsthand many patients with a problem with self regulation of consumption.

Maybe I am interpreting your assertions too literally.

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

#270

Post by CPLX »

jprete wrote: post #234
beaeglebeachedd wrote: post #228

Earlier quoted context omitted.

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.

That's a very contrived scenario and your hypothetical response is very unrealistic. For one thing, the gangsters either wait outside the gambling joint or simply take it outright and farm the rake. For another, real communities with such dynamics don't accumulate cash, they might accumulate tangible goods or a little infrastructure but they are not going to have large sums of cash-equivalents lying around. For all k…

Maybe but when you see seemingly irrational behavior by "the underclass" it's always worth spending a little more time trying to understand what kinds of issues they may be facing that you're not intuitively aware of.

If you've been in the position where every dollar you make gets somehow taken from you without warning for years you'd act differently. Goes from things like avoiding banks due to various fees or garnishments, up to practices of wearing expensive jewelry because it's a fairly efficient way to carry value on your person, and because you often get to keep it even when you get arrested, unlike the cash in your pocket.

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