311–320 of 328 posts
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> 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.
Just using the world “gamble” in a sentence doesn’t make it so.
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Right, people gamble on houses to provide them shelter. Insurance hedges against the risk of losing.
No, they buy houses to provide them shelter. Just using the world “gamble” in a sentence doesn’t make it so.
While the odds are good, buying a house does not guarantee shelter. One has to place a bet that the house will provide the shelter that they seek. If one loses (e.g. the house burns down), that's it. It was all for not. The loss is very much real. The only way you get to play again is to buy a different house[1]. Literally gambling.
However, one can hedge the risk of the gamble by also purchasing insurance. With the right insurance, the insurance will help buy another house in which one can take another bet on. So, again, insurance may not be gambling[2], but it is a tool used to help one gamble. It has no applicability outside of gambling.
> Just using the world “gamble” in a sentence doesn’t make it so.
Are you confusing gambling with gambling for the sake of entertainment? You have a point that buying a house or selling insurance is not like playing a state lottery or casino games. However, that is not what the article is about[3], nor would any reasonable person think that is the only form of gambling.
[1] Repairing it, if possible, but as far as this discussion goes that is the same as buying a different house.
[2] From the buyer's point of view. The insurer gambles (in turn, hedged by reinsurance) when a policy is sold.
[3] It does not seem to be able to find any difference between gambling and (selling) insurance. It is not written about fun games of chance.
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I would describe every single one of these as active risk management - and the difference between one sort of active risk management and another is vibes, not reality. There’s an implied moral judgment here that gambling is inherently bad. I don’t think gambling is inherently immoral; I think mismanaging risk (in either direction) is one of the ways people mess themselves up and therefore encouraging people to take b…
The difference is not vibes! Reducing your position is the opposite of increasing your position, and those things are very objective. If someone has an equal number of short and long shares in a single company, they are not gambling. Surely we can agree on that, right? We don't have to use the word gambling, we can say they're not investing either. Their money does not change at all based on the stock market or any o…
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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).
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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.
If a bank can pay you positive value (in the form of interest), an insurance company can as well.
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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…
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The difference is not vibes! Reducing your position is the opposite of increasing your position, and those things are very objective. If someone has an equal number of short and long shares in a single company, they are not gambling. Surely we can agree on that, right? We don't have to use the word gambling, we can say they're not investing either. Their money does not change at all based on the stock market or any o…
They are absolutely gambling; there are various ways that position can blow up. (Consider counterparty risk.)
But come on, counterparty risk with big institutions is such a small thing. Are you going to tell me that putting your money in a vault is gambling because someone could steal it? Is subscribing to Netflix gambling because the servers might go down?
Having a net-zero position is the closest to not gambling anyone can get.
How about this, can we agree that having short or long stocks is a high number out of 10 on the gambling scale, but just counterparty risk with an enormous company is a 2 out of 10? What do we call the process of reducing your number from high to 2?
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> 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…
Except that having multiple valid definitions of something that is foundational to a discipline is a bit unsettling.
It’s foundational to one branch. Almost all of finance, for instance, doesn’t bother with utility functions.
One can similarly complain that mathematicians have different rules for parallel lines depending on geometry. Like, sure. But if you’re in the field it makes perfect sense why parallel lines don’t intersect in a Euclidean space but do in a curved one. Given utility functions are literally ordered sets of preferences, it strikes me as trivial that there would be a multitude of them. (If this bothers you, don’t look up Gödel.)
The economists who deal with utility functions are more or less applied game theoreticians. Some people have a problem with game theory and statistics because they’re unpure. Like, sure. Fine. I also have a small stable of useless opinions, e.g. raisins are trash fruit. That doesn’t mean raisins are themselves useless; it’s just my opinion that’s adding zero value in a world where raisins do.
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Except that having multiple valid definitions of something that is foundational to a discipline is a bit unsettling.
> having multiple valid definitions of something that is foundational to a discipline It’s foundational to one branch. Almost all of finance, for instance, doesn’t bother with utility functions. One can similarly complain that mathematicians have different rules for parallel lines depending on geometry. Like, sure. But if you’re in the field it makes perfect sense why parallel lines don’t intersect in a Euclidean spa…
You need the concept of utility and some (reasonable) assumptions about the shape of the utility curve to derive CAPM - at least the way I was taught it and there may be an alternative I do not know of?
I do not think there being a multitude of utility curves is a problem. It seems to be there is a lack of a clear concept.
I do not think that your analogy with maths works. Maths is is more abstract and should change with different sets of axioms. Economics is supposed to be based on observations of the real world.
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> In insurance you expect to come out ahead in the average case. Not financially, no. On average people who buy insurance receive less in payouts than they pay in in premiums. If that were not the case, nobody would sell insurance because anyone who tried to would go bankrupt. If you factor in the non-financial benefit of risk avoidance, then yes, people who buy insurance come out ahead--but now not just in the avera…
Oh I meant from the perspective of the one selling the insurance, not the person buying it.
>In gambling you expect to come out behind in the average case.
Casino usually wins :)