4 ms·

Insurance is the precise opposite of gambling; instead of concentrating reward, it distributes risk. When you buy insurance you're not betting that something b

Insurance is the precise opposite of gambling; instead of concentrating reward, it distributes risk. When you buy insurance you're not betting that something bad will happen to you, you're hedging your otherwise implicit bet that something bad _won't_ happen to you.

paulcole 8y ago
You're just rephrasing it. How about: I'm betting State Farm $12 a month my apartment will burn down before I die or move out.
- Ajedi32 8y ago
  Think of it this way: if your apartment burns down and you don't have insurance, you lose your apartment and everything in it. If your apartment burns down and you do have insurance, you still lose your apartment, but that loss is completely (at least in an ideal world) offset by money provided by the insurance company. Which scenario is the bigger gamble?
  - paulcole 8y ago
    If I don't bet on the Patriots when I'm a Chiefs fan and the Patriots win my heart is broken. If the Patriots win and I bet on them, then my heart is still broken but that loss is offset by money provided by my bookie. I remain unconvinced that insurance is anything but a legal gamble.
    - Ajedi32 8y ago
      If everyone treated sports bets that way, maybe it wouldn't be considered gambling. Though I kinda doubt a subscription service offering payouts whenever your favorite sports team loses would be a very successful business, as you'd have to be a pretty hardcore fan for emotional damage due to a loss to be something so significant that you can't take the hit without monetary compensation to console you.
- jstarfish 8y ago
  At the individual level, it seems a lot like gambling but insurance is not about individuals, it's about the pool. You and a million other people give State Farm $12 so that in the event of fire or flood affecting a subset of the pool, there's enough money collected to pay out to make claimants whole. There are no "winners" in the insurance game, only losses. If they have to pay you, you've already lost both the premiums you've already paid as well as what people or property were damaged (gambler's fallacy at work-- your entire neighborhood is smoldering and your family is dying painfully in the burn ward, but here's your insurance check, you winner!). In your case, even if your apartment does burn down, it's not like you walk away with a windfall (unlike gambling). The adjuster is going to see to it you end up no better off than almost-exactly how you were before the fire. You don't "win" anything, and the meager payout you get can't always replace who or what you lost in the process. Everybody involved also loses if more peoples' apartments go up in flames than there is money in reserve-- unlike with lotteries, where the payout is distributed equally amongst the claimants.
  - paulcole 8y ago
    > At the individual level, it seems a lot like gambling but insurance is not about individuals, it's about the pool. How do you think casinos and bookies work? They spread their risk by setting lines and odds and taking a vig.
njarboe 8y ago
So gambling by insurance companies is ok, just not people. Unless it is an insurance co-op (which I think would be great), there is always entity on the other side with the concentrated risk. It seems so many laws are about protecting people from themselves, but then we need exceptions from them for society to work at all. Like you can't legally invest in a non-listed company if you are not an accredited investor. Maybe we should make this distinction more formal and universal. Society could have an official and transparent way a person could enter the class of people who are expected to be responsible for their actions.
- zrobotics 8y ago
  How is the insurance company taking a concentrated risk? My auto insurance co is betting that more people will drive safely and not make claims than the value of claims paid out. They distribute, not concentrate, their risk. They accept that there will be some people who have claims larger than what they have paid in, but that risk is distributed over a large pool.

paulcole 8y ago

You're just rephrasing it. How about: I'm betting State Farm $12 a month my apartment will burn down before I die or move out.

Ajedi32 8y ago
Think of it this way: if your apartment burns down and you don't have insurance, you lose your apartment and everything in it. If your apartment burns down and you do have insurance, you still lose your apartment, but that loss is completely (at least in an ideal world) offset by money provided by the insurance company. Which scenario is the bigger gamble?
- paulcole 8y ago
  If I don't bet on the Patriots when I'm a Chiefs fan and the Patriots win my heart is broken. If the Patriots win and I bet on them, then my heart is still broken but that loss is offset by money provided by my bookie. I remain unconvinced that insurance is anything but a legal gamble.
  - Ajedi32 8y ago
    If everyone treated sports bets that way, maybe it wouldn't be considered gambling. Though I kinda doubt a subscription service offering payouts whenever your favorite sports team loses would be a very successful business, as you'd have to be a pretty hardcore fan for emotional damage due to a loss to be something so significant that you can't take the hit without monetary compensation to console you.
jstarfish 8y ago
At the individual level, it seems a lot like gambling but insurance is not about individuals, it's about the pool. You and a million other people give State Farm $12 so that in the event of fire or flood affecting a subset of the pool, there's enough money collected to pay out to make claimants whole. There are no "winners" in the insurance game, only losses. If they have to pay you, you've already lost both the premiums you've already paid as well as what people or property were damaged (gambler's fallacy at work-- your entire neighborhood is smoldering and your family is dying painfully in the burn ward, but here's your insurance check, you winner!). In your case, even if your apartment does burn down, it's not like you walk away with a windfall (unlike gambling). The adjuster is going to see to it you end up no better off than almost-exactly how you were before the fire. You don't "win" anything, and the meager payout you get can't always replace who or what you lost in the process. Everybody involved also loses if more peoples' apartments go up in flames than there is money in reserve-- unlike with lotteries, where the payout is distributed equally amongst the claimants.
- paulcole 8y ago
  > At the individual level, it seems a lot like gambling but insurance is not about individuals, it's about the pool. How do you think casinos and bookies work? They spread their risk by setting lines and odds and taking a vig.

njarboe 8y ago

So gambling by insurance companies is ok, just not people. Unless it is an insurance co-op (which I think would be great), there is always entity on the other side with the concentrated risk. It seems so many laws are about protecting people from themselves, but then we need exceptions from them for society to work at all. Like you can't legally invest in a non-listed company if you are not an accredited investor. Maybe we should make this distinction more formal and universal. Society could have an official and transparent way a person could enter the class of people who are expected to be responsible for their actions.

zrobotics 8y ago
How is the insurance company taking a concentrated risk? My auto insurance co is betting that more people will drive safely and not make claims than the value of claims paid out. They distribute, not concentrate, their risk. They accept that there will be some people who have claims larger than what they have paid in, but that risk is distributed over a large pool.