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"They wouldn’t offer you the insurance if you could, in expectation, come out ahead from it." Agreed in principle, but maybe its not that simple: 1) there may

"They wouldn’t offer you the insurance if you could, in expectation, come out ahead from it." Agreed in principle, but maybe its not that simple: 1) there may be enough small claims to look linear, but large claims (the ones that cause lawsuits over medical fees) probably aren't linear 2) regulation gives the market friction and makes it non-ideal competition and regulation has squeezed this industry to the point of competing solely on price. unlikely that margins are high, and quite likely that some of the small, cheaper players are to price even closer to expectation, won't be able to absorb a few non-linear events in a really unlucky timespan, but drives down market prices to below profitable anyway. edit: he actually acknowledges this in the article: "...market efficiency suggests that their profits not be too obscene overall, which means the effective odds you’re offered shouldn’t be too skewed.... buying insurance may only be slightly stupid, not ear-full-of-cider stupid."

dreeves 15y ago
I'm not sure I understand point 1, about non-linearity. Is there any conceivable way that could cause the odds to shift in your favor? Point 2 I think could only make the odds worse for you if it involves increased overhead for the insurance company. Your last point is a good one, though. There's a bit at the end of the article about this: Of course, “sucker” might be hyperbolic. After all, insurance is ostensibly a competitive industry so market efficiency suggests that their profits not be too obscene overall, which means the effective odds you’re offered shouldn’t be too skewed. Fundamentally, it’s an empirical question though, hinging on claims paid vs. premiums collected. I could well be proved wrong: buying insurance may only be *slightly* stupid, not ear-full-of-cider stupid.

dreeves 15y ago

I'm not sure I understand point 1, about non-linearity. Is there any conceivable way that could cause the odds to shift in your favor? Point 2 I think could only make the odds worse for you if it involves increased overhead for the insurance company. Your last point is a good one, though. There's a bit at the end of the article about this: Of course, “sucker” might be hyperbolic. After all, insurance is ostensibly a competitive industry so market efficiency suggests that their profits not be too obscene overall, which means the effective odds you’re offered shouldn’t be too skewed. Fundamentally, it’s an empirical question though, hinging on claims paid vs. premiums collected. I could well be proved wrong: buying insurance may only be *slightly* stupid, not ear-full-of-cider stupid.