4 ms·
no, health insurance is of negative expected utility. if it was of positive expected utility insurance would have to run at a loss. on top of being young and
by nazgulnarsil 17y ago
no, health insurance is of negative expected utility. if it was of positive expected utility insurance would have to run at a loss.
on top of being young and healthy with a fantastic family history of health and longevity, I am highly risk averse. If anything happens to me it will much more likely be due to someone else's negligence, not mine. in addition I am poor and the state of CA allows you to retroactively sign up for medicare if you were qualified at the time the injury occurred. my cost benefit analysis will change I'm sure when I start making more money.
- gjm11 17y agoNegative expected dollar value is not the same as negative expected utility. Buying any sort of insurance has the former property (subject to some assumptions that may not actually be true, such as unlimited credit); it need not have the latter. Suppose, for instance, your total assets are $1M, and that you are extremely healthy but have a 0.1% chance each year of contracting a condition that will kill you rapidly (and agonizingly) unless it is treated, which can be done reliably and safely but costs $2M. (Yes, this is an artificial example.) Then the naive expected cost of your health situation is $2k/year. But if (a) you value your life at a lot more than $1M and (b) raising the money to pay for the treatment would impose a lifetime cost on you that's a lot more than $1M, then in terms of expected utility you would do better to pay for insurance against that condition, even if it costs you (say) $3k/year.
- nazgulnarsil 17y agoI am aware of that. I factor in non-dollar benefits such as the peace of mind and the ability to engage in riskier behavior (which insurance companies hate but can't stop).