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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)

#41

Post by sailfast »

BugsJustFindMe wrote: post #15
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

> Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. Counter: your belief about insurance is inverted from reality because your notion of what constitutes winning vs losing at insurance is backwards. You lose at insurance by not having any circumstances that lead to payout. You win at insurance by having it actually d…

Insurance (outside of health insurance, which is not insurance in the typical sense) hedges your "bet" so it's not gambling to me. Your bet is that you'll drive a car without an accident. Insurance hedges that bet to reduce downside risk if there is an accident.

You're paying a small amount to avoid a large loss, on purpose, knowing that it may not happen. You're not trying to get more out of it than you put in (at least on purpose) because that's fraud. Doesn't sound like a bet to me...

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

#42

Post by pdonis »

BugsJustFindMe wrote: post #15
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

> Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. Counter: your belief about insurance is inverted from reality because your notion of what constitutes winning vs losing at insurance is backwards. You lose at insurance by not having any circumstances that lead to payout. You win at insurance by having it actually d…

> You lose at insurance by not having any circumstances that lead to payout. You win at insurance by having it actually do something for you.

You are misunderstanding what insurance is for. The benefit that insurance conveys for the person insured is not that it is supposed to make money. It is risk avoidance.

Without insurance, you might pay zero, or you might pay a very large sum that you can't afford. With insurance, you pay a predictable sum periodically, no matter what happens, and the insurance company is the one taking the risk of either paying zero or a very large sum, which hopefully the company can afford.

In other words, just as the GP said, insurance is the opposite of gambling. In gambling, you accept the huge variance in payoff. In insurance, you transfer that risk to someone else.

> Every time you pay and nothing bad happens leading to payout, that amount you spent that month is lost

No, it isn't. You are getting something of value to you in return: risk avoidance. If that is of no value to you, then don't buy insurance. You might not regret it. But then again, you might.

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

#43

Post by Almondsetat »

xp84 wrote: post #27
Almondsetat wrote: post #19

Earlier quoted context omitted.

"Risking it all" was not referring to being a gambling addict. It simply meant that if you put 10k on black and the ball goes on red, you lose all of the 10k

Same as if I buy a 10-year term life insurance policy and don't die during that decade. I lost all of the full premium paid.

You will live those 10 years with more peace of mind, which is the only reason to have life insurance since once you're dead you're dead

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

#45

Post by sailfast »

andoando wrote: post #6
philipov wrote: post #4

Gambling isn't wrong. Gambling is stupid . Hedging risk is not stupid. That's the difference.

Insurance is stupid if you are wealthy enough to cover the damages on your own. Insurance for your phone, computer etc for example is certainly stupid for most people.

Being wealthy enough to cover it yourself doesn't mean it's stupid to buy the option to avoid the downside if it's priced properly.

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

#46

Post by copperx »

leashless wrote: post #38

In insurance you expect to come out ahead in the average case. In gambling you expect to come out behind in the average case. Therefore insurance is rational and gambling is irrational.

I've been driving 20 years and have never had an accident. I believe I'm the average case. Am I coming out ahead?

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

#47

Post by analog31 »

Something not mentioned in the article is that both gambling and insurance can be regulated, or unregulated industries.

Most familiar forms of mainstream insurance (car, home, health, etc) are actually regulated financial services. Likewise, legal casinos in most states of the US. The quality and transparency of the service depends a lot on the quality and enforcement of regulation.

It does seem to me that insurance involves "collateral" in the sense that you insure things that actually exist. This would seem to place a limit on what people are willing to pay for insurance.

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

#48

Post by pdonis »

DaveExeter wrote: post #16
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

I would express it differently. With insurance, you are guarantee to lose. To insure against a 10K risk, you have to pay 20K. 50% of your premium goes towards staff, advertising, profit, etc. But you reduce variance.

> With insurance, you are guarantee to lose.

No, you're not. There is no guarantee that your payout on a claim will be less than the value of the premiums you paid in at the time you make the claim. Averaged over all people being insured, that will be true, but you are just one person, not the average of all people.

> To insure against a 10K risk, you have to pay 20K.

No, to insure against a 10K risk, you pay some much smaller premium periodically over time. There is nothing that says you must have paid in 20K in premiums before the insurance company will pay out 10K on a claim by you. The insurance company is insuring a huge number of people; all they care about is the average result, not the single result in your individual case.

Also, all the above assumes that only monetary value matters to you. But monetary value alone is not why most people buy insurance. Most people buy insurance for risk avoidance, i.e., peace of mind. They want to transfer the risk of having to make a large payout if something bad happens to someone else who can better afford it. That is a thing of value to many people, which is why they are willing to pay for it.

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

#49

Post by Almondsetat »

yamrzou wrote: post #34
Almondsetat wrote: post #5

Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, al…

Insurance companies are like casinos: Playing at a casino, I’m almost guaranteed to lose money (unless I’m a very good poker player — the house and I can both win there); if I’m lucky, I can win big. If I buy insurance, I’m almost guaranteed to lose money; if I’m unlucky, I can get reimbursed for losses. From: The House Always Wins — Casinos and Insurance Companies — https://kriswilliams.medium.com/the-house-always-w…

Yes, you always lose a bit of money with insurance, but life isn't all about money, whereas the whole point of gambling is winning money. Insurance brings other benefits that improve your life.

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

#50

Post by paul_funyun »

leashless wrote: post #38

In insurance you expect to come out ahead in the average case. In gambling you expect to come out behind in the average case. Therefore insurance is rational and gambling is irrational.

In insurance you expect to come out behind in the average case, unless you're an insurance company.
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