3 ms·

This also introduces the Ear Full of Cider Principle, as articulated by Marlon Brando's character in "Guys and Dolls": One of these days in your travels a

by dreeves 15y ago

This also introduces the Ear Full of Cider Principle, as articulated by Marlon Brando's character in "Guys and Dolls": One of these days in your travels a guy is going to show you a brand-new deck of cards, on which the seal is not yet broken. Then this guy is going to offer to bet you that he can make the jack of spades jump out of this brand-new deck of cards and squirt cider in your ear. But, son, you do not accept this bet. Because as sure as you stand there you’re going to wind up with an ear full of cider. (Economists call this the no-trade theorem.) And to quote from the article: What does it have to do with insurance? Buying insurance is, quite literally, accepting a wager with the insurance company. You’re betting that you will crash your car and the insurance company is betting that you won’t. The ratio of your premiums to the payout for the possible claim establishes the odds that the insurance company is giving you. They wouldn’t offer you those odds unless the bet was a savvy one for them. Which makes you the sucker.

rm445 15y ago
That's a very pessimistic way of looking at insurance. Sure, extended warranties on consumer goods and so on are things to be avoided, but insurance would still exist in a world of informed and rational people. When you buy insurance you get reduced expected value (over going it alone) but you also reduce the variance - the cost of driving a car around becomes a somewhat predictable constant rather than there being the ever-present risk of a large cost. Yes, if you are in a financial position where the cost of a car is something you can take on the chin, then it is up there with extended warranties as something to avoid. But for the vast majority of people in the real world, that is not the case.
delinka 15y ago
I am truly insuring against fraudsters. If someone does attempt to defraud me by way of a staged automobile accident, the insurance company is there to take on the responsibility of enacting the legal system to bring the perpetrators to "justice." That's really the benefit of insurance.

by dreeves 15y ago

rm445 15y ago

That's a very pessimistic way of looking at insurance. Sure, extended warranties on consumer goods and so on are things to be avoided, but insurance would still exist in a world of informed and rational people. When you buy insurance you get reduced expected value (over going it alone) but you also reduce the variance - the cost of driving a car around becomes a somewhat predictable constant rather than there being the ever-present risk of a large cost. Yes, if you are in a financial position where the cost of a car is something you can take on the chin, then it is up there with extended warranties as something to avoid. But for the vast majority of people in the real world, that is not the case.

delinka 15y ago

I am truly insuring against fraudsters. If someone does attempt to defraud me by way of a staged automobile accident, the insurance company is there to take on the responsibility of enacting the legal system to bring the perpetrators to "justice." That's really the benefit of insurance.