4 ms·
Uh... the downside isn't inevitable?
by colinmegill 10y ago
Uh... the downside isn't inevitable?
- diab0lic 10y agoI'm not sure this answers the question outlined in the title. Gambling is wrong because the downside isn't inevitable but insurance is okay because the downside is? If anything I imagine gambling to be introducing risk of ruin while insurance is protecting against it.
- Buge 10y agoBoth have possible upsides. And both have negative expected value.
- coralreef 10y agoHow do you figure that gambling or insurance have negative expected value?
- JumpCrisscross 10y ago> [Why do] gambling or insurance have negative expected value[s]? The house sets the rules and the house has to make money. Occasionally the house sets bad rules [1] [2]. Those houses go out of business, leaving a greater fraction of the surviving shops demonstrating the rule. [1] https://www.theatlantic.com/magazine/archive/2012/04/the-man-who-broke-atlantic-city/308900/ https://www.theatlantic.com/magazine/archive/2012/04/the-man... [2] http://www.businessinsider.com/heres-the-untold-story-of-how-aig-destroyed-itself-2010-3 http://www.businessinsider.com/heres-the-untold-story-of-how...
- Buge 10y agoIf you multiply the gambling reward with the probability of winning, it will be less than the cost to play. This is the house edge. It's how the casino makes money. It's the same thing with insurance. If you multiply the size of the payout with the probability of getting a payout, it will be less that your insurance premiums. It's how the insurance company makes money. https://en.wikipedia.org/wiki/Expected_value https://en.wikipedia.org/wiki/Expected_value E[x] = prize*winning_probability - cost < 0
- laughinghan 10y agoBecause casinos and insurance companies are profitable, and your transaction with them is zero-sum (negative if vice or sales taxes apply).