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What makes gambling wrong but insurance right? (2017)
61–70 of 328 posts
Re: What makes gambling wrong but insurance right? (2017)
#62Gambling isn't wrong. Gambling is stupid . Hedging risk is not stupid. That's the difference.
However, being sold something like health insurance as hedging risk is bullshit. There is no risk in needing to provide healthcare to a population, its a given, though its not always equal cost per person. However, something like crop insurance allows one to take the up front risk of buying a ton of seed and machines while hedging against the off chance that drought, fire, pest or rain ruins a crop before it can be h…
> being sold something like health insurance as hedging risk is bullshit.
More precisely, what is now called "health insurance" in countries like the US is mostly not insurance, because it does not involve costly, rare, unpredictable events, which are the kinds of events that are insurable risks. What should happen is that those kinds of things (for example, insurance against injuries in accidents) should be separate from the provision of predictable health care services, which most health care services are.
Re: What makes gambling wrong but insurance right? (2017)
#63Insurance is just a form of investment. It seems to me that the primary difference between gambling and investment is that the utility of gambling (the expected return over time) is negative, and the utility of investment is positive. And that's it. In a casino, the gambler is gambling, while the casino is investing.
> the utility of gambling (the expected return over time) is negative, and the utility of investment is positive.
No, actually, if you include non-monetary benefits, both expected utilities (gambling and insurance) are positive (at least if the gambler is rational and only bets amounts that are more than compensated for by the entertainment value involved), but if you don't, if you only consider monetary costs and benefits, both expected utilities (gambling and insurance) are negative. So insurance is not an investment in the financial sense, where the expected monetary utility alone is supposed to be positive.
Re: What makes gambling wrong but insurance right? (2017)
#64Insurance 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…
Having insurance is gambling, but not having insurance is also gambling. This is because life itself is a gamble. We don't know what the future holds and we have the choice to insure or gamble on just about any aspect of our lives.
Insurance companies are just like casinos in that the math always favours them if you look at a sufficiently large sample size. Even so, some things are still worth insuring. e.g. Your house. Most people do not have enough assets saved up to replace their house should it burn down. Even though your house will likely not burn down, protecting yourself against the loss of something you can't easily afford to replace is worth spending money on.
Does it make sense to insure things you can replace though? Consider the "Instant product replacement" plans that stores constantly try to sell you. If your monitor dies you can easily absorb the cost of buying a new one. If, instead of buying IPR's on everything, you set aside a similar amount of money, you'll likely soon come out far ahead. Even if you don't, you'll still be able to afford it. Buying IPR's means, on average, you lose money. Not buying IPR's means, on average, you'll save money. The choice is easy.
Insure the big, vital things you can't afford to replace. Treat insuring small things as gambling without the fun.
Re: What makes gambling wrong but insurance right? (2017)
#65Earlier quoted context omitted.
> it simply reduces variance Mostly I agree. That doesn't make it not gambling though.
If gambling and insurance were the same you would be able to both frame insurance as a form of gambling and gambling as a form of insurance.
I believe I said that insurance is gambling, not that all gambling is insurance. If not I apologize. So I should be covered by what I already said elsewhere, that buying insurance is betting (aka gambling) that a bad thing will happen sooner rather than later or never.
Now is all gambling insurance? Hmm. Maybe betting that something will happen is equivalent to insuring against its happening not financially benefiting you. Boom.
Re: What makes gambling wrong but insurance right? (2017)
#66Earlier quoted context omitted.
> 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 insuran…
> The benefit that insurance conveys for the person insured is not that it is supposed to make money. Presuming you mean ending with more money than you started, gambling isn't either. Pay in vs pay out has no relation whatsoever to that except in passing. > It is risk avoidance. These are the same thing dressed in different names. There's only no making money on health insurance in the sense that you don't get to ke…
> Presuming you mean ending with more money than you started, gambling isn't either.
That's true, but it doesn't mean insurance and gambling are the same thing.
> These are the same thing dressed in different names.
No, they're not. In gambling, I accept the risk involved in a wide variance in payoffs, for the entertainment value involved (since I can imagine that I might be a big winner); on net I am paying money for entertainment. In insurance, I transfer the risk involved in a wide variance in payoffs, for the peace of mind of not having to worry about being bankrupted if a rare but catastrophic event occurs; on net I am paying money for peace of mind (since I don't have to imagine that I might be a big loser).
> Consider term life insurance instead
But your next of kin only gets a payout if you die during the term. If you don't, nobody gets any payout and all the premiums you paid are lost. Which, since insurance companies make money selling term life insurance, is the expected average result. So on net, you do not make money buying term life insurance--but, as above, you might still do it if the peace of mind involved is worth it to you.
> your next of kin does just actually get a fat check.
But they are losing you--and even if we go to extreme cynicism about that, they are losing whatever income and other goods and services you provided, for which the check will hopefully be enough to compensate them. So it's not a pure gain with no offsetting loss, even leaving out the premiums paid.
Re: What makes gambling wrong but insurance right? (2017)
#67Earlier quoted context omitted.
> The benefit that insurance conveys for the person insured is not that it is supposed to make money. Presuming you mean ending with more money than you started, gambling isn't either. Pay in vs pay out has no relation whatsoever to that except in passing. > It is risk avoidance. These are the same thing dressed in different names. There's only no making money on health insurance in the sense that you don't get to ke…
> Presuming you mean ending with more money than you started, gambling isn't either. That's true, but it doesn't mean insurance and gambling are the same thing. > These are the same thing dressed in different names. No, they're not. In gambling, I accept the risk involved in a wide variance in payoffs, for the entertainment value involved (since I can imagine that I might be a big winner); on net I am paying money fo…
> But your next of kin only gets a payout if you die during the term. If you don't, nobody gets any payout and all the premiums you paid are lost.
Yes, aka gambling.
> But they are losing you
That is true AND it is not what you paid for. Just like health insurance isn't paying for health but rather for coverage of bills related to loss of health. Being healthy is a win for health but not a win for buying health insurance. Being alive is a win for living but not a win for buying life insurance.
Re: What makes gambling wrong but insurance right? (2017)
#68You are not required to gamble by law.
Re: What makes gambling wrong but insurance right? (2017)
#69Earlier quoted context omitted.
However, being sold something like health insurance as hedging risk is bullshit. There is no risk in needing to provide healthcare to a population, its a given, though its not always equal cost per person. However, something like crop insurance allows one to take the up front risk of buying a ton of seed and machines while hedging against the off chance that drought, fire, pest or rain ruins a crop before it can be h…
> being sold something like health insurance as hedging risk is bullshit. More precisely, what is now called "health insurance" in countries like the US is mostly not insurance, because it does not involve costly, rare, unpredictable events, which are the kinds of events that are insurable risks. What should happen is that those kinds of things (for example, insurance against injuries in accidents) should be separate…
To be fair, accidents and large health issues are relatively predictable in any population.
What makes health insurance particularly predatory, is the attempt to carve around segments of the population to make money in something that everyone needs.
Almost all accident insurance could be grouped under occupational and transportation related insurance. The remaining accident insurance would be insanely small across almost all segments of any population.
Re: What makes gambling wrong but insurance right? (2017)
#70In 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?
Yes, you are, if you can't “afford” the loss. And this does not mean that loosing the car bankrupts you.
It just means that reimbursing you for your loss is worth more to you than the insurance company, because it's harder for you to recover form a (e.g.) $10k loss than for the insurance company.
When priced correctly, and depending on your wealth, on average insurance can be a win-win (i.e. profitable) transaction for both parties. That's why it's economically useful.
See: https://two-wrongs.com/the-misunderstood-kelly-criterion.htm...