5 ms·

what do you mean? in both cases the odds are against you.

lucisferre 10y ago
Don't be ridiculous. Insurance companies exchange a guaranteed coverage of some risk at a calculated cost by pooling risk. Gambling is a repeated game tilted the house's favour where the players can lose big with every turn of the wheel. There is nothing guaranteed to the players other than the fact that over a long enough time frame they will certainly lose and over short times they may also lose. It should be noted of course that gambling is generally not illegal as long as the government (read: the people) is benefiting. Whether one agrees with gambling as a tax or not is another discussion. Unregulated gambling is typically illegal because it benefits no one.
logfromblammo 10y ago
In gambling, you are concentrating risk. In insurance, you are diffusing risk. Both rely on the expected value calculation. If you own an object that has a 10% chance in any given year to spontaneously self-annihilate (and a 90% chance to continue existing as usual), then you would expect that its value next year will be ( 0.1 * 0 + 0.9 * v = ) 0.9 times its value right now. Gambling is to watch it for a year. If it continues to exist, you still have it, and it is worth the same. You beat the odds. But if it vanishes, you lost everything. Insurance is to accept the reality that you can't keep winning that game forever. You can spread the risk of loss over multiple years, while abandoning any gambling windfalls you might have enjoyed. You pay 10% of the value of the object every year to your [mathematically simplified] insurer, who agrees to pay 100% of its value in the event it is lost. In any year it still exists, you "lost" 0.1 of the value you "won" by still having it. In the year it vanishes, you lost 1.0 the value of the item itself, but got a net 0.9 of the value of the item in non-self-destructing cash, "losing" 0.1 total. From your end, you get exactly the value you expect mathematically from owning the item, year after year, with zero risk to you. The non-simplified math is a bit more complex, but ensures that while you will always eventually lose the self-destructing object itself, you will never lose all of its value all at once. It also means your insurer is essentially investing the gains you would have otherwise realized by gambling. Once their bet is closed by disappearance of your object, they pay you off from their investment portfolio and pocket the difference or absorb the loss. The smart play for you would be to neither gamble nor insure, sell the self-destructing asset right away, and invest the proceeds normally, in something that has a positive expected value. Eliminating the risk is always worth more than managing it.

Don't be ridiculous. Insurance companies exchange a guaranteed coverage of some risk at a calculated cost by pooling risk. Gambling is a repeated game tilted the house's favour where the players can lose big with every turn of the wheel. There is nothing guaranteed to the players other than the fact that over a long enough time frame they will certainly lose and over short times they may also lose. It should be noted of course that gambling is generally not illegal as long as the government (read: the people) is benefiting. Whether one agrees with gambling as a tax or not is another discussion. Unregulated gambling is typically illegal because it benefits no one.

logfromblammo 10y ago

In gambling, you are concentrating risk. In insurance, you are diffusing risk. Both rely on the expected value calculation. If you own an object that has a 10% chance in any given year to spontaneously self-annihilate (and a 90% chance to continue existing as usual), then you would expect that its value next year will be ( 0.1 * 0 + 0.9 * v = ) 0.9 times its value right now. Gambling is to watch it for a year. If it continues to exist, you still have it, and it is worth the same. You beat the odds. But if it vanishes, you lost everything. Insurance is to accept the reality that you can't keep winning that game forever. You can spread the risk of loss over multiple years, while abandoning any gambling windfalls you might have enjoyed. You pay 10% of the value of the object every year to your [mathematically simplified] insurer, who agrees to pay 100% of its value in the event it is lost. In any year it still exists, you "lost" 0.1 of the value you "won" by still having it. In the year it vanishes, you lost 1.0 the value of the item itself, but got a net 0.9 of the value of the item in non-self-destructing cash, "losing" 0.1 total. From your end, you get exactly the value you expect mathematically from owning the item, year after year, with zero risk to you. The non-simplified math is a bit more complex, but ensures that while you will always eventually lose the self-destructing object itself, you will never lose all of its value all at once. It also means your insurer is essentially investing the gains you would have otherwise realized by gambling. Once their bet is closed by disappearance of your object, they pay you off from their investment portfolio and pocket the difference or absorb the loss. The smart play for you would be to neither gamble nor insure, sell the self-destructing asset right away, and invest the proceeds normally, in something that has a positive expected value. Eliminating the risk is always worth more than managing it.