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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)

#91

Post by michaelmrose »

Insurance maximizes the productive capacity of the economy by allowing the entire class of actors to absorb the net cost of a peril while all continuing their productive endeavors enhancing the health and wealth of society.

Gambling allows one class of actors with better planning, impulse control, and knowledge to siphon off the productive capacity of society usually while producing nothing of value.

What's more it is usually by virtue of its other attributes and position in society the sector is often directly involved in other illicit activities or at least crime adjacent creating an opportunity to defund or deter crime by attacking this sector.

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

#92

Post by richrichie »

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…

Both are lottery tickets if viewed from a pure financial contract perspective.

Utility of a particular contract to a buyer is subjective.

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

#93

Post by adw »

pdonis wrote: post #81
BugsJustFindMe wrote: post #67

Earlier quoted context omitted.

> 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 s…

No, the other poster is actually right. In betting on outcomes, there are two roles - bet (“long”) and lay (“short”). An insurance company is exactly a bookmaker; they are buying a bunch of risk and being paid a vig (or in the case of long-duration bets and life insurance, getting the carry) on each of those risks.

This is indistinguishable from insurance, particularly when the beneficiary of insurance isn’t the subject (key-person insurance, for example, which you can view life insurance as a form of).

You’re saying that because these are morally different - which I don’t actually believe, given that options trading is another equivalent form of hedging/speculation, but I will grant - these are different things. But “fire which I use to cook dinner” and “fire which I use to torch a car during a riot” are both fire; the goal is different, but the object used is not. Let’s say I hedge a bunch of political risk by betting on politics. How is that different from buying a custom insurance policy from Lloyd’s or engaging in a bunch of interest rate swaps?

Drawing a distinction between betting and insurance on those lines is the same thing as saying “being long in a stock is morally good, being short in a stock is morally bad”, and I don’t think that position holds up.

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

#94

Post by vbezhenar »

Almondsetat wrote: post #56
BugsJustFindMe wrote: post #30

Earlier 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.

IMO the main difference is that insurance provides two good outcomes while gambling only one.

So you're buying car insurance. There are two outcomes: either your car will survive another year or you'll crash. First outcome: you're happy because you've got a survived car. Second outcome: you're happy because you've got insurance payout.

Now you're buying lottery ticket. First outcome: you won the lottery and you've got the prize. Second outcome: you didn't win the lottery and you lost your money spent on lottery ticket.

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

#95

Post by martinflack »

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.

Many types of insurance that protect payouts to third parties include provisions that the insurer handles the lawsuit to defend the claim. This can be a convenience even to a wealthy person, especially one who doesn't get sued much.

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

#96

Post by adw »

pdonis wrote: post #58
from-nibly wrote: post #11

Earlier quoted context omitted.

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.

> Where exactly on which exact bell curve does gambling stop and insurance start? That's not the difference. The difference is that in gambling, you accept a large variance in payoff, whereas in insurance, you don't; you transfer that risk to someone else.

In gambling you pay someone to take risk for you. In insurance you pay someone to take risk for you. They are the same tool; we just give it a different name when we’re hedging from when we’re speculating.

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

#97

Post by [deleted] »

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.

[deleted]

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

#98

Post by immibis »

carlosjobim wrote: post #40
bee_rider wrote: post #10

Earlier quoted context omitted.

IMO gambling gets a bad reputation by people who only look at the expected value. If you place a bet where the cost is low enough that it won’t make a qualitative difference to your life, and the possible (not expected) reward is such that it would make a qualitative difference in your life, then you might have maximized the probability of achieving that qualitative difference, despite lowering your expected value. T…

> then you might have maximized the probability of achieving that qualitative difference No, you have only maximized the probability if you bet all of your money and all of the money you can borrow, beg or steal.

Utility is a non-linear and hard-to-estimate function of money. I may be almost as well off with $5000 as with $10000, since either case I can afford groceries until the next paycheck and still need to keep my job, but much worse off if I have $0, since I can't afford groceries, and much better off if I have $5,000,000, since I don't need a job, but not much better off from that if I have $10,000,000. If I can bet $5000 for a chance of $5,000,000 it might be worth it, but betting $10000 would leave me penniless and not increase my possible reward that much - what am I going to do, buy two mansions if I win? Buy a bigger one that I have no use for?

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

#99

Post by beefnugs »

beloch wrote: post #64
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…

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 hou…

What about the gamble that the whole thing is a scam from the beginning? If they are going to fight tooth and nail to never payout anyway its all insanity.

Also how could insurance ever be a "for profit" business? That could never work. Profit means straight up planning scam right from the beginning, hoping that a big enough payout triggers business failure and you dont have to pay out anyone, yippee free and clear rug pull

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

#100

Post by doubloon »

agree, this is definitely describing something that is little talked about but very central to economics.

there is a book by the Gangs of New York author called Sucker's Progress: An Informal History of Gambling in America (1938). The relation between insurance and gambling used to be even more blurry. Even the terminology. The word "Policy" for example. https://en.wikipedia.org/wiki/Numbers_game

Even the mathematical foundations of insurance (probability) derived from the study of gambling. The famous Bayesian statistics are described by Bayes based on the concept of pebbles coming out of a bag.

i feel that we do not discuss economics / gambling / insurance in detail because it is emotionally difficult.

"well but the house always wins in gambling"

and in insurance? how often does the house lose?

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