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>You could also say that gambling is net negative sum, while insurance is net positive sum. Isn't the second part of this statement false? How could insurance
by wu-ikkyu 10y ago
>You could also say that gambling is net negative sum, while insurance is net positive sum.
Isn't the second part of this statement false? How could insurance companies stay in business if their profits are negative? Isn't it a net negative sum for the customer base by design of the actuarial tables?
- snarf21 10y agoI assume they are speaking to the fact that the amount they pay out + management costs can be higher than they the amount they take in as premiums. It is because all those premiums are invested in the stock market and other vehicles which is where their profit comes from. A know of insurance companies run at -0.5% but the stock market averages up to 8% over any 20 year period. Basically, we could all do this the same way. Take all the money you pay into insurance and invest it. When you have an incident, take it out. The only downside is if you have an incident larger than what you have invested so far. People also have set up collectives that do this as a group inside of paying others.
- SilasX 10y agoIt's positive sum with respect to utility, not money. Because utility increases less-than-linearly with money, a 10X loss is more than ten times as bad as a loss of X. So a guaranteed loss of X is better than a 1/10 chance of a loss of 10X. It may even be better than a loss of 9X, and since the insureds are paying 10X in the aggregate, you have a margin to cover overhead.
- deleted 10y ago[deleted]