5 ms·

Talk about potential moral hazard...

• metageek 16y ago
  No more so than buying insurance against terrorism.
  • _delirium 16y ago
    There are (admittedly imperfect) rules for insurance sales that attempt to minimize the moral hazard, though. One must normally have an "insurable interest" to buy insurance, i.e. the potential to actually yourself suffer some harm if the insured-against event happens. So you can't just buy insurance as a pure bet, where if an event happens, you get a payout without suffering any harm from the event. For example, you can take out property insurance on your own property, but not on your neighbor's property, or on Stanford University's property, or on the World Trade Center (unless you own one of those).
    • quanticle 16y ago
      So you can't just buy insurance as a pure bet, where if an event happens, you get a payout without suffering any harm from the event. The importance of that rule was demonstrated in the recent financial meltdown, as AIG was unable to pay all the claims of people who took out "insurance" on collateralized debt obligations they didn't own.
  • notahacker 16y ago
    Not really. Insurance companies have an interest in not paying the costs of terrorism; the insured have a vested interest in not being blown up. Both interests are aligned squarely against terrorism[1]. In a futures market, people betting on events occurring within a given time frame have their interests closely aligned with allowing or encouraging those events to occur. Even if you restrict it to carefully qualified security analysts who you're confident aren't backing terrorists, a prediction market financially incentivises them to withhold any intel they've obtained or observations they've made[2] that might disrupt terrorists' original plans. [1]Unless you're trying to commit insurance fraud by staging attacks on your own overvalued property. No system is without weaknesses. [2]If there isn't any information asymmetry in their favour then there's no expectation of profit
    • metageek 16y ago
      >the insured have a vested interest in not being blown up When you put it that way, I feel stupid. :-)
• eli 16y ago
  You are correct, but for what's it worth the market was intended to be for security experts. Not just anyone could place a bet.
  • JonnieCache 16y ago
    >market was intended to be for security experts Oh. Phew. Now I know that only seasoned banking/finance professionals are involved I feel completely safe! Those guys never do any crazy shit! EDIT: do you mean security experts or securities experts?
    • T_S_ 16y ago
      >do you mean security experts or securities experts? Yes.
  • protomyth 16y ago
    If they could keep their mouths shut, some fiction writers of the proper genre would have been a pretty good add.