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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)

#81

Post by pdonis »

BugsJustFindMe wrote: post #67
pdonis wrote: post #66

Earlier quoted context omitted.

> 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 insur…

> That is true AND it is not what you paid for.

You're qubbling. You paid for replacement of the income and goods and services you can no longer provide, in the event of your death. Sure, that doesn't replace you in the eyes of your beneficiaries (assuming we're not taking the extremely cynical viewpoint about that), but of course nothing can replace you in that sense.

However, if your beneficiaries are financially secure enough that they do not need the insurance payout, i.e., if they're not depending on you for income or goods and services, then you should not be buying life insurance: you should be spending the premiums on something with a positive expected rate of financial return. The only reason to buy insurance in the first place is if your beneficaries are depending on you and will need something to replace you financially if you are no longer there.

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

#82

Post by NovemberWhiskey »

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…

The difference between insurance and gambling is about what happens to your risk - whether it's a hedge or not.

When you buy insurance, you pay a premium to make you whole should a random event occur in the future. You exchange a payment for certainty about future cash flows with respect to the insured risk.

When you place a bet, you do the opposite. You exchange a payment for uncertainty about future cash flows with respect to the subject of the bet.

If you insure against a risk to which you're not exposed (like: you take out a life insurance policy on a person you don't know with you as the beneficiary), then yes - that's risk taking rather than hedging.

Commodities futures have similar aspects: if you're an aluminum producer then you can trade futures in order to reduce your exposure to variations in the market price. On the other hand, if you're a hedge fund trading those futures then you're probably doing the opposite - looking for exposure to risk.

If you're going to take the position that a known cashflow now that returns an uncertain cashflow in the future is "gambling" then essentially all forms of economic activity are "gambling". It's reductio ad absurdum.

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

#83

Post by Dudhbbh3343 »

rufus_foreman wrote: post #33

I'm trying to figure this out, gambling is a zero sum game. The gamblers are the only ones bringing money to the table, the bookies take a cut, someone loses and someone wins. Is insurance a zero sum game? I think...sort of?

As a first-order approximation, yes they're both zero sum in expectation. The amount lost is approximately the amount won in the long run, ignoring casino and insurance company expected profits.

At least that's true for for-profit insurance. When governments get involved, the line may blur between insurance and welfare, making it less zero sum.

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

#85

Post by [deleted] »

from-nibly wrote: post #11
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…

First off thats just reinforcing the grayness of the difference. Where exactly on which exact bell curve does gambling stop and insurance start? Second, the one thats even more ambiguous is insurance from the perspective of the insurer. It's just gambling with a payment plan, that HOPEFULLY doesn't turn into a ponzi scheme.

[deleted]

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

#86

Post by sdwr »

from-nibly wrote: post #11
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…

First off thats just reinforcing the grayness of the difference. Where exactly on which exact bell curve does gambling stop and insurance start? Second, the one thats even more ambiguous is insurance from the perspective of the insurer. It's just gambling with a payment plan, that HOPEFULLY doesn't turn into a ponzi scheme.

There's no bell curve.

Insurance is hedging against the value of something you have an interest in (which takes the form of a bet against that thing).

Gambling is betting on a thing.

So a short option on a stock (betting against it) would be:

a) insurance if taken out by the company, or a shareholder, or someone with stake in the business

b) gambling if done by a random third party

There's a moral component to the definition.

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

#87

Post by worstspotgain »

The former increases risk and the latter reduces it.

In Economics, risk is outcome variability. It's a cost if you're risk-averse (i.e. generally sane) and a benefit if you're risk-loving (i.e. mildly nuts.)

To mitigate the problem of vast numbers of people being mildly nuts, governments invented lotteries. The idea is to maximize the thrill/price ratio and steer people away from gambling addiction - at least to the extent that they're a sufficient fix and not a gateway drug.

Next up: What makes Russian Roulette wrong but climbing a crane to build a hospital right?

At least the crane version is a somewhat-interesting example in that you're increasing one's risk to reduce another's. The linked article is just plain dumb.

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

#88

Post by xboxnolifes »

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.

Insurance is not about coming out ahead on the average case. In fact, it's the insurance company that comes out ahead when you average everything (otherwise they wouldn't be a business). You pay for insurance to come out ahead of (or equal to) the 40th(-ish) percentile cases.

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

#89

Post by aleph_minus_one »

pdonis wrote: post #42
BugsJustFindMe wrote: post #15

Earlier quoted context omitted.

> 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 insuran…

> 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.

I buy a lottery ticket as an insureance against the risk that I won't become rich if the right lottery number become picked. :-)

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