Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

What makes gambling wrong but insurance right? (2017)

bbc.com

Post reply on HN
Print view View original

271–280 of 328 posts

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

#271

Post by gdilla »

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…

well you can hedge your bets, a form of insurance. people do this with stock too.

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

#272

Post by scott_w »

mcculley wrote: post #269
scott_w wrote: post #264

Earlier quoted context omitted.

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.

Ok but I’m guessing you’re in the USA where you’d have to pay significant sums for that in some form, as long as you can convince a doctor to sign off.

I’m not aware of a similar problem in England, where prescriptions are currently £9.90 per prescription.

This is my point: the financial cost, as with obesity, is not regulating the behaviour.

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

#273

Post by mcculley »

scott_w wrote: post #272
mcculley wrote: post #269

Earlier quoted context omitted.

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.

Ok but I’m guessing you’re in the USA where you’d have to pay significant sums for that in some form, as long as you can convince a doctor to sign off. I’m not aware of a similar problem in England, where prescriptions are currently £9.90 per prescription. This is my point: the financial cost, as with obesity, is not regulating the behaviour.

Ah, now I understand why you are confused. No, most people with health problems in the U.S. are paying, at most, only a copay for a visit. They are getting medical treatment at no cost to them directly. It is paid for by an insurer or the state or Federal government.

This moral hazard is fundamental to our problem and why many have problems regulating their consumption.

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

#274

Post by ivancho »

bluecalm wrote: post #265
ivancho wrote: post #263

Earlier quoted context omitted.

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 se…

Ok, take 100 people, with $100 each, and have one round of $1 coin flips between each 2. A significant number of bets overall, 4950. Each person has wagered 1% of their net worth 99 times, something that we all agree sounds quite scary. And yet there will be no busted people, most will likely be between $80 and $120. Repeat this 10 times, a ridiculous amount of gambling - still most likely no bankruptcies, and the total utility, if we assume log, has barely dropped by 1%.

I simply do not believe that we are making such a subtle societal optimization by frowning upon gambling while encouraging all kinds of other risk taking, like investments and properties.

And the other scenario where insurance just acts as a drain on the overall system seems to indicate that it is not inherently positive for utility either

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

#275

Post by scott_w »

mcculley wrote: post #273
scott_w wrote: post #272

Earlier quoted context omitted.

Ok but I’m guessing you’re in the USA where you’d have to pay significant sums for that in some form, as long as you can convince a doctor to sign off. I’m not aware of a similar problem in England, where prescriptions are currently £9.90 per prescription. This is my point: the financial cost, as with obesity, is not regulating the behaviour.

Ah, now I understand why you are confused. No, most people with health problems in the U.S. are paying, at most, only a copay for a visit. They are getting medical treatment at no cost to them directly. It is paid for by an insurer or the state or Federal government. This moral hazard is fundamental to our problem and why many have problems regulating their consumption.

Except this simply DOESN’T HAPPEN in the most famous free healthcare system on Earth, so clearly it can’t be a moral hazard. I also know for a fact these people aren’t getting this for “free.” I just checked and copay is subject to the deductible. Also, I seriously doubt insurance companies aren’t ramping up premiums on these people once they get a chance.

Are these people seriously going “well it’s only $26 a pop so I may as well.” Do you think the (apparently) low price is what’s causing this?

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

#276

Post by mcculley »

scott_w wrote: post #275
mcculley wrote: post #273

Earlier quoted context omitted.

Ah, now I understand why you are confused. No, most people with health problems in the U.S. are paying, at most, only a copay for a visit. They are getting medical treatment at no cost to them directly. It is paid for by an insurer or the state or Federal government. This moral hazard is fundamental to our problem and why many have problems regulating their consumption.

Except this simply DOESN’T HAPPEN in the most famous free healthcare system on Earth, so clearly it can’t be a moral hazard. I also know for a fact these people aren’t getting this for “free.” I just checked and copay is subject to the deductible. Also, I seriously doubt insurance companies aren’t ramping up premiums on these people once they get a chance. Are these people seriously going “well it’s only $26 a pop so…

I believe that you have strong opinions of the system with which I have too much experience.

Many of these people are, in the case of pain clinics, getting their pills paid for by workers’ compensation carriers.

That the UK has avoided some moral hazards does mean that they cannot exist elsewhere. Maybe the UK doesn’t incentivize doctors to hand out more pills.

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

#277

Post by LorenPechtel »

ivancho wrote: post #274
bluecalm wrote: post #265

Earlier quoted context omitted.

>>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 se…

Ok, take 100 people, with $100 each, and have one round of $1 coin flips between each 2. A significant number of bets overall, 4950. Each person has wagered 1% of their net worth 99 times, something that we all agree sounds quite scary. And yet there will be no busted people, most will likely be between $80 and $120. Repeat this 10 times, a ridiculous amount of gambling - still most likely no bankruptcies, and the to…

It's unlikely anyone's busted but utility is unquestionably lowered. A negative for society. Insurance increases equality, gambling lowers it.

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

#278

Post by LorenPechtel »

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…

Disagree on the probability bit. The important part is the severity of the negative outcome.

And if you can't afford to lose the toy you couldn't afford to buy it in the first place. Thus toys should never be insured.

(That is, of course, assuming they aren't mispricing it. I've seen a situation like that where I considered it: There are companies that offer small-appliance warranties at approximately an x% of price model--reliability doesn't enter into it. If you know that with your use case the product is likely to fail within the warranty... But some searching shows the real business model is to make it nearly impossible to actually make your claim.)

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

#279

Post by LorenPechtel »

raincole wrote: post #207
mungoman2 wrote: post #186

Earlier 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"

If you have 10% chance to lose -$91 and 90% chance to get +$10, the expected value in money is -$0.1. It sounds bad. But the relationship between utility and money isn't linear. If for you, $10 is worth 10u and $91 is worth only 89u, this deal has expected value of +0.1u. Why and how isn't it linear? It's a hard problem that can't be answered easily. However we know it's true for most big institutions in stock and bo…

In the real world it always goes the other way--the next dollar is never worth as much as the previous dollar, thus any fair bet costs more (the previous dollar) than it gains (the next dollar.)

That's why you should only engage in negative bets, aka insurance. There you are trading a next dollar (worth less) for a previous dollar (worth more).

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

#280

Post by LorenPechtel »

There's another factor that sometimes is in play here: tax treatment.

I used to take my employer's dental coverage. I considered the expected value to be "negative" and could easily self-insure. Yet it was a good deal anyway: I could pay the insurance cost with pre-tax dollars, but if I paid out of pocket it was with after-tax dollars.

This is also why you periodically see news things about *big* employers taking out insurance on all of their employees. No, it's not an indication they are being unsafe, but taxes. The proceeds from life insurance are tax free. The insurance company invests the money, when it's paid out that's not taxable. Done on a big enough scale the overhead costs are less than the benefit of converting taxable gains into tax free gains.

Post reply on HN