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There's a difference between knowing the risk distribution and knowing the future. The perfect insurance would know how likely it is that you are going to have

There's a difference between knowing the risk distribution and knowing the future. The perfect insurance would know how likely it is that you are going to have to pay a catastrophically large amount, and would charge you amount*probability. If probability=1.0, then sure, they should charge you the whole amount.

jtbayly 7y ago
Ah. This makes sense of it. So even if they reduce the pool size to one, they are still multiplying by my unique probability.
perl4ever 7y ago
The future becomes completely predictable as it approaches, so probability necessarily evaporates in the limit. As the data gathered increases, the probability eventually reaches 1.0. For instance, if an insurance company could legally gather all telemetry from your car at a high enough frequency and cancel your policy at will, then it could determine that your car was on an unavoidable collision course and eliminate losses. This may sound like a silly thought experiment, but I think it demonstrates that in principle, there must be some point at which we draw the line on discrimination to have insurance, so if you find yourself defending all discrimination then you've gone wrong somewhere. Either there's a principle that has been missed, or it is valid to just set the rules in society that people are comfortable with.
- mannykannot 7y ago
  The approach to the limit is not often smooth, and the cost of insurance is not continuously reevaluated, so this is not an appropriate model for those situations in which insurance is actually the answer. There are, however, situations where the model is a reasonable fit - notably, some aspects of health care, where the approach to the limit proceeds over multiple billing periods. A society can choose to spread the cost around, but to do this under the guise of insurance leads to the sort of incongruities and inefficiencies that are seen in the US system.

jtbayly 7y ago

Ah. This makes sense of it. So even if they reduce the pool size to one, they are still multiplying by my unique probability.

perl4ever 7y ago

The future becomes completely predictable as it approaches, so probability necessarily evaporates in the limit. As the data gathered increases, the probability eventually reaches 1.0. For instance, if an insurance company could legally gather all telemetry from your car at a high enough frequency and cancel your policy at will, then it could determine that your car was on an unavoidable collision course and eliminate losses. This may sound like a silly thought experiment, but I think it demonstrates that in principle, there must be some point at which we draw the line on discrimination to have insurance, so if you find yourself defending all discrimination then you've gone wrong somewhere. Either there's a principle that has been missed, or it is valid to just set the rules in society that people are comfortable with.

mannykannot 7y ago
The approach to the limit is not often smooth, and the cost of insurance is not continuously reevaluated, so this is not an appropriate model for those situations in which insurance is actually the answer. There are, however, situations where the model is a reasonable fit - notably, some aspects of health care, where the approach to the limit proceeds over multiple billing periods. A society can choose to spread the cost around, but to do this under the guise of insurance leads to the sort of incongruities and inefficiencies that are seen in the US system.