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What makes gambling wrong but insurance right? (2017)

• deleted 2y ago
  [deleted]
• t0bia_s 2y ago
  I find preventive insurances as business with fear for wealthy clients. I never spent a cent for unnecessary insurances.
• arn3n 2y ago
  I've always thought that ethically "right" forms of insurance (and other financial products, like equities, futures, etc.) is that they should enable individuals to take actions that are riskier than they would normally be able to, without unduly increasing the aggregate risk of the entire system. Of course, this is 1. Hard to measure and 2. Hard to define "unduly". For example, I believe mortgages are a "good" financial instrument, because they enable people to have homes and roofs over their head without introducing systemic risk... except when done in 2008. The devil is in the details and the implementation, I suppose.
  • hiatus 2y ago
    > I've always thought that ethically "right" forms of insurance (and other financial products, like equities, futures, etc.) is that they should enable individuals to take actions that are riskier than they would normally be able to, without unduly increasing the aggregate risk of the entire system. What are some examples of an "ethically right" insurance product?
    • arn3n 2y ago
      One example that the article gave is how Ghanan farmers couldn't risk to expand or specialize their crops because of the risk of drought. That feels like a need that could viably be met with sensible insurance. One form of insurance I've always been a fan of in the US, at least, is mandatory car insurance. Considering that the cost of a collision can be extraordinarily high for all parties involved, but because most people don't crash, amortizing that risk out among drivers enables more people to get vehicles and transportation without freak accidents putting people into financial distress.
      • arnsholt 2y ago
        Or simply building fire insurance, so you’re not massively in the hole with no collateral if your house burns down. Which is why lenders require a house to at least be fire insured in my market, as a condition of the mortgage.
      • sokoloff 2y ago
        The mandatory insurance is for your liability if you damage other people’s property. (If you have financed the car, you likely also have to insure your own car against collision and other damages, but that’s a condition of the financing, not a law.) We were hit from behind in a car that we did not carry collision insurance on. The at-fault driver is responsible for the repairs and they have mandated insurance to cover that.
• philipov 2y ago
  Gambling isn't wrong. Gambling is stupid. Hedging risk is not stupid. That's the difference.
  • andoando 2y ago
    Insurance is stupid if you are wealthy enough to cover the damages on your own. Insurance for your phone, computer etc for example is certainly stupid for most people.
    • ghaff 2y ago
      Generally speaking. I (rarely) buy insurance for things like travel when I have reason to think that I have circumstances that may lead to a higher probability of collecting insurance than the average person automatically buying it has. And I certainly have things like homeowner's insurance where losses could be catastrophic. But self-insuring for random relatively low-cost events mostly makes little sense for people as it does for companies.
    • sailfast 2y ago
      Being wealthy enough to cover it yourself doesn't mean it's stupid to buy the option to avoid the downside if it's priced properly.
      • andoando 2y ago
        Insurance companies are always going to give you unfavorable odds, unless you think for some reason youre more likely than average to have an accident. I don't understand why car/home insurance isnt nationalized
        • cmrdporcupine 2y ago
          Car insurance is nationalized in a few Canadian provinces. https://en.wikipedia.org/wiki/Public_auto_insurance https://en.wikipedia.org/wiki/Public_auto_insurance
        • 2y ago
• Almondsetat 2y ago
  Insurance is different from gambling because if you pay and things go well, things go well. If you pay and things go badly, things go a lot less badly. In fact, insurance is the exact opposite of gambling. Gambling is all about risking it all. It's an activity that sits at the extremes of the bell curve. You win it all, you lose it all. Insurance on the other hand is a small price you pay that, through statistics, allows you move your odds from the ends of the bell curve towards the center. If you win, you win a bit less because you have to take into account the Insurance money you spent. If you lose, you lose less because the insurance premiums will kick in. Basically, insurance is a PID controller.
  • from-nibly 2y ago
    First off thats just reinforcing the grayness of the difference. Where exactly on which exact bell curve does gambling stop and insurance start? Second, the one thats even more ambiguous is insurance from the perspective of the insurer. It's just gambling with a payment plan, that HOPEFULLY doesn't turn into a ponzi scheme.
    • bee_rider 2y ago
      I think they are on different sides of 50% probability. Insurance helps mitigate a low-probability risk. Gambling provides a low-probability chance of a big reward. Socially the presence of a small number of really destitute people is a problem, so we moralize the process to prevent it as “bad.” The presence of a small number of really rich people is, like, neutral or negative, so we don’t moralize the a thing they produces them as good. It is a bit weird that we don’t moralize the rich as good in this case, given that we often do do that. Not sure what’s up there. Maybe gambling is uncomfortable because produces rich that aren’t seen as deserving somehow.
      • elijaht 2y ago
        > I think they are on different sides of 50% probability. Insurance helps mitigate a low-probability risk. Gambling provides a low-probability chance of a big reward. Trivially not true- I can wager on a heavy favorite to win at very low payouts
• mehwoot 2y ago
  The difference is that gambling increases the overall variance of outcomes to an individual whereas insurance decreases it. I wouldn't say insurance is a form of gambling but that they are two ends of the same spectrum. The difference in intention is a clear distinction to me.
• deleted 2y ago
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• slt2021 2y ago
  Betting is taking on some defined risk with probability of payoff. Insurance is offloading part of the risk to the third-party (Insurance underwriter). For example I can bet on the roulette on the Black. I can also insure(hedge) against Zero by paying insurance premium (1/37 of my bet on Black). that way I bet on Black and have 1:1 odds, and in case of Zero my insurance will pay out 37:1 completely paying back my bet on Black. of course 1/37's of my bet will be gone most of the time and this is exactly the house edge in roulette. in real-life you probably don't want to bet most of the times, but in some obscure low probability scenarios - you would want to offload that low probability event to insurance. main difference is you expect insurance to pay out rarely, but in betting you expect to payout more regularly.
• SeanLuke 2y ago
  Insurance is just a form of investment. It seems to me that the primary difference between gambling and investment is that the utility of gambling (the expected return over time) is negative, and the utility of investment is positive. And that's it. In a casino, the gambler is gambling, while the casino is investing.
  • thornewolf 2y ago
    insurance is negative EV, like gambling, for the individual.
    • SeanLuke 2y ago
      Actually, insurance is very often positive expected value for the individual. He's paying the insurance company $n, which the company reinvests for even higher expected value, which is how the company makes a profit even when it's paying out to its customers slightly more than they put in. It's essentially the bank model. I suppose that even when insurance is negative, its primary function is to buy protection against being shunted to $0 value. You're paying value to eliminate risk.
      • pxx 2y ago
        you're just renaming things here. the expected real (as opposed to nominal) value is still zero or negative. people don't run insurers out of the kindness of their hearts.
        • SeanLuke 2y ago
          They compete with other insurance companies for customers. And the way to do that is to minimize the cost of insurance for a given payout. Which can push the expected value to go positive. If a bank can pay you positive value (in the form of interest), an insurance company can as well.
  • pdonis 2y ago
    > the utility of gambling (the expected return over time) is negative, and the utility of investment is positive. No, actually, if you include non-monetary benefits, both expected utilities (gambling and insurance) are positive (at least if the gambler is rational and only bets amounts that are more than compensated for by the entertainment value involved), but if you don't, if you only consider monetary costs and benefits, both expected utilities (gambling and insurance) are negative. So insurance is not an investment in the financial sense, where the expected monetary utility alone is supposed to be positive.
• karaterobot 2y ago
  I have to challenge the premise here. I don't hear people saying gambling is wrong and insurance is right. My guess is most people consider gambling a harmless vice most of the time, and consider insurance an annoying fact of life. Now, people consider problem gambling a problem, but that's a tautology. Many people also think casinos are predatory, but wait 'til you hear what they think about insurance companies.
  • akira2501 2y ago
    The reality is insurance is a product regulated by the government and gambling is a product often outlawed entirely by governments.
• rufus_foreman 2y ago
  I'm trying to figure this out, gambling is a zero sum game. The gamblers are the only ones bringing money to the table, the bookies take a cut, someone loses and someone wins. Is insurance a zero sum game? I think...sort of?
  • ponector 2y ago
    The insureds are the only ones bringing money to the table, the insurers take a cut, someone loses and someone wins.
  • Dudhbbh3343 2y ago
    As a first-order approximation, yes they're both zero sum in expectation. The amount lost is approximately the amount won in the long run, ignoring casino and insurance company expected profits. At least that's true for for-profit insurance. When governments get involved, the line may blur between insurance and welfare, making it less zero sum.
• anonbanker 2y ago
  If you know what a Tontine[1] is, you'll understand there really is no difference between Insurance and Gambling. 1. https://en.wikipedia.org/wiki/Tontine https://en.wikipedia.org/wiki/Tontine
  • rundmc 2y ago
    Well insurance is in case something you don't want happens (die young) whereas a tontine is in case something you do want (live long) happens. I'd call that a major difference but then again I'm biased.
• rembicilious 2y ago
  Life is the gamble. Insurance is a hedge. That’s not complicated. Mandating that people purchase health insurance is a complication in the sense that a person is forced to use their resources to hedge or pay penalties, instead of going all in on life. In the US it’s mostly a low-middle class problem because the cost of health insurance affects their financial flexibility. It’s not a great expense to the middle-upper class and the poor usually qualify for government healthcare.
• leashless 2y ago
  In insurance you expect to come out ahead in the average case. In gambling you expect to come out behind in the average case. Therefore insurance is rational and gambling is irrational.
  • wslh 2y ago
    Both are rational... if reason is applied.
  • copperx 2y ago
    I've been driving 20 years and have never had an accident. I believe I'm the average case. Am I coming out ahead?
    • ncruces 2y ago
      Yes, you are, if you can't “afford” the loss. And this does not mean that loosing the car bankrupts you. It just means that reimbursing you for your loss is worth more to you than the insurance company, because it's harder for you to recover form a (e.g.) $10k loss than for the insurance company. When priced correctly, and depending on your wealth, on average insurance can be a win-win (i.e. profitable) transaction for both parties. That's why it's economically useful. See: https://two-wrongs.com/the-misunderstood-kelly-criterion.html https://two-wrongs.com/the-misunderstood-kelly-criterion.htm...
  • paul_funyun 2y ago
    In insurance you expect to come out behind in the average case, unless you're an insurance company.
  • pdonis 2y ago
    > In insurance you expect to come out ahead in the average case. Not financially, no. On average people who buy insurance receive less in payouts than they pay in in premiums. If that were not the case, nobody would sell insurance because anyone who tried to would go bankrupt. If you factor in the non-financial benefit of risk avoidance, then yes, people who buy insurance come out ahead--but now not just in the average case, but in all cases, at least as long as the people buying insurance are rational and only buy the amount of risk avoidance they actually need.
• analog31 2y ago
  Something not mentioned in the article is that both gambling and insurance can be regulated, or unregulated industries. Most familiar forms of mainstream insurance (car, home, health, etc) are actually regulated financial services. Likewise, legal casinos in most states of the US. The quality and transparency of the service depends a lot on the quality and enforcement of regulation. It does seem to me that insurance involves "collateral" in the sense that you insure things that actually exist. This would seem to place a limit on what people are willing to pay for insurance.
• deleted 2y ago
  [deleted]
• adsharma 2y ago
  You are not required to gamble by law.
• brightlancer 2y ago
  Before we delve into everything else... > Risk-sharing mutual aid societies are now among the largest and best-funded organisations on the planet - we call them "governments". I'm not aware of any mutual aid society that shot an unarmed man SEVEN TIMES IN THE HEAD because they misidentified him. The Metropolitan Police did, and none of the officers were disciplined. https://en.wikipedia.org/wiki/Shooting_of_Jean_Charles_de_Menezes https://en.wikipedia.org/wiki/Shooting_of_Jean_Charles_de_Me... That right there is a great example of the bias of the BBC. ---- The article is engaging but doesn't give a good explanation of the difference between "insurance" and "gambling". At the very end it brings up financial derivatives but again does not explain them well or the danger they caused. Is "insurance" a type of "gambling"? Maybe. But it's quite different from gambling in a US casino (and I presume UK casino). In the US, "gambling" refers to wagers placed at known odds, sometimes against other players; legal gambling has limitations on how much money the House can take: e.g. if a casino "wins" $100, they must also pay $80 to someone. Again in the US, "insurance" (excepting health "insurance", which is mostly not insurance) is someone paying a regular premium and the insurer promising to pay if certain events happening to the person, with the government requiring that the insurer keep financial reserves to pay out claims. If you stop paying your premiums, you lose your insurance. If the insured events never happen, the insurer keeps your money. In a sense, insurance is a type of gambling, but closer to buying an umbrella in the morning in case it rains in the afternoon. Financial derivatives were portrayed as insurance but were not regulated as such, and the banks did not keep reserves to pay them out; because folks were also taking "insurance" against events that happened to third-parties (i.e. not themselves) it looks a lot like gambling (though they weren't regulated as that, either). I highly recommend the film "The Big Short" to explain the 2008 financial crisis in fairly plain terms. (I finally picked up the book but it's in the queue on my shelf.)
• CamperBob2 2y ago
  The same reasoning that makes mountain climbing legal but street drugs illegal, I imagine.
• koolala 2y ago
  ouchie
• worstspotgain 2y ago
  The former increases risk and the latter reduces it. In Economics, risk is outcome variability. It's a cost if you're risk-averse (i.e. generally sane) and a benefit if you're risk-loving (i.e. mildly nuts.) To mitigate the problem of vast numbers of people being mildly nuts, governments invented lotteries. The idea is to maximize the thrill/price ratio and steer people away from gambling addiction - at least to the extent that they're a sufficient fix and not a gateway drug. Next up: What makes Russian Roulette wrong but climbing a crane to build a hospital right? At least the crane version is a somewhat-interesting example in that you're increasing one's risk to reduce another's. The linked article is just plain dumb.
• hyoogle 2y ago
  There is nothing either good or bad but thinking makes it so.
• michaelmrose 2y ago
  Insurance maximizes the productive capacity of the economy by allowing the entire class of actors to absorb the net cost of a peril while all continuing their productive endeavors enhancing the health and wealth of society. Gambling allows one class of actors with better planning, impulse control, and knowledge to siphon off the productive capacity of society usually while producing nothing of value. What's more it is usually by virtue of its other attributes and position in society the sector is often directly involved in other illicit activities or at least crime adjacent creating an opportunity to defund or deter crime by attacking this sector.
• doubloon 2y ago
  agree, this is definitely describing something that is little talked about but very central to economics. there is a book by the Gangs of New York author called Sucker's Progress: An Informal History of Gambling in America (1938). The relation between insurance and gambling used to be even more blurry. Even the terminology. The word "Policy" for example. https://en.wikipedia.org/wiki/Numbers_game https://en.wikipedia.org/wiki/Numbers_game Even the mathematical foundations of insurance (probability) derived from the study of gambling. The famous Bayesian statistics are described by Bayes based on the concept of pebbles coming out of a bag. i feel that we do not discuss economics / gambling / insurance in detail because it is emotionally difficult. "well but the house always wins in gambling" and in insurance? how often does the house lose?
  • kortilla 2y ago
    > how often does the house lose? Not often, but it does. See AIG
    • doubloon 2y ago
      AIG got bailed out by the government and is still in business.
      • kortilla 2y ago
        The shareholders still lost.
  • Yossarrian22 2y ago
    > and in insurance? how often does the house lose? That’s why the house has actuaries and analysts to tell them that their bets in Florida are too highly correlated to each other, and they have risk of bankruptcy. So they leave the state. Similarly, I imagine we’ll see tests of insurance companies’ risk analysis when California has a significant earthquake.
• camillomiller 2y ago
  Funnily enough, insurance in Blackjack is the real scam. The edge is against the player in all hands except two cases, in which you would just lose less if you buy it.
• skhunted 2y ago
  One is addictive and the other is not.
• akira2501 2y ago
  Gambling is played through "games of chance." Which is all you're betting against. Insurance is priced through "underwriting." Which measures the value of the underlying economic activity or instrument within the fair market and puts a contract price on it's guarantee for a limited period of time and specific purpose. There's also broader forms of historical "insurance" such as the maritime law of "General Average." Which further highlights the differences between the nature of insurance versus the nature of gambling.
• refurb 2y ago
  It seems obvious? Insurance means you pay to protect against a loss, gambling is paying to potentially gain? Most insurers will not insure you unless you are at risk of a loss. For example, you can't buy a homeowners policy for a house you don't own.
  • randomdata 2y ago
    > Most insurers will not insure you unless you are at risk of a loss. This is why it is non-obvious. There is no risk of loss without a gamble. As you point out, insurance only comes into play when you are gambling – you cannot insure that which you have not gambled on. So if gambling is wrong, why is a tool to help you gamble right?
    • refurb 2y ago
      > you cannot insure that which you have not gambled on That doesn't follow at all. People don't buy houses to "gamble it doesn't burn down". Not in the sense of the word "gamble" is being used.
      • randomdata 2y ago
        Right, people gamble on houses to provide them shelter. Insurance hedges against the risk of losing.
        • refurb 2y ago
          No, they buy houses to provide them shelter. Just using the world “gamble” in a sentence doesn’t make it so.
          • randomdata 2y ago
            > No, they buy houses to provide them shelter. While the odds are good, buying a house does not guarantee shelter. One has to place a bet that the house will provide the shelter that they seek. If one loses (e.g. the house burns down), that's it. It was all for not. The loss is very much real. The only way you get to play again is to buy a different house[1]. Literally gambling. However, one can hedge the risk of the gamble by also purchasing insurance. With the right insurance, the insurance will help buy another house in which one can take another bet on. So, again, insurance may not be gambling[2], but it is a tool used to help one gamble. It has no applicability outside of gambling. > Just using the world “gamble” in a sentence doesn’t make it so. Are you confusing gambling with gambling for the sake of entertainment? You have a point that buying a house or selling insurance is not like playing a state lottery or casino games. However, that is not what the article is about[3], nor would any reasonable person think that is the only form of gambling. [1] Repairing it, if possible, but as far as this discussion goes that is the same as buying a different house. [2] From the buyer's point of view. The insurer gambles (in turn, hedged by reinsurance) when a policy is sold. [3] It does not seem to be able to find any difference between gambling and (selling) insurance. It is not written about fun games of chance.
• snotrockets 2y ago
  Fun fact: in the US, you can actually buy an insurance against a specific event that had already happened when you took the insurance (the term to google is “title insurance”)
  • mewpmewp2 2y ago
    It would be good to clarify that it is a generally unknown issue or an unknown event that might have happened in the past, but discovery of this still happens in the future.
• senderista 2y ago
  I remember when I was in high school I learned about expected utility and went around telling everyone they were idiots for buying insurance. Then I learned about risk aversion and felt really dumb...
• ccppurcell 2y ago
  This article is really interesting and explains the common origins of gambling and insurance, I had no idea that Lloyds of London began as essentially a gambling ring (and before that a coffee shop, another fascinating topic in the history of London and Paris especially and the world in general). Also a great line about governments being little more than mutual aid societies. The comments here are a big let down. Just people opining glibly on the title. I hoped for better.
  • deleted 2y ago
    [deleted]
• maCDzP 2y ago
  If this sort of thing interest you I can recommend the authors podcast “Cautionary tales”.
• ptsneves 2y ago
  Insurance can benefit the insured and insurer according to Kelly’s criterion depending on respective wealth and risk probability. Have a look at this blog for intuitive examples where insurance is beneficial for both the insurer and insured. https://two-wrongs.com/the-misunderstood-kelly-criterion.html https://two-wrongs.com/the-misunderstood-kelly-criterion.htm... The thing that makes or breaks the Kelly criterion is the correct evaluation of risk. If the risk is incorrect then it is garbage-in garbage-out. Due to this uncertainty, people tend to use fractional Kelly criterion. For a car example, my current car price is a significant proportion of my total wealth and the risk of totalling it is perceived by me to be high, so I pay insurance. I say perceived because in 15 years of driving I never totalled a car. But now that I understand the Kelly criterion I will account for how expensive it is proportionately to my wealth and figure the cutoff price where I need to get total coverage insurance and how much it costs. It also explains by cell phone insurance and similar are normally not a good deal, the insured asset is worth a small proportion of my wealth.
  • bluecalm 2y ago
    It's not about Kelly Criterion specifically but about utility of money in general. Kelly Criterion just solves for maximal utility assuming utility is logarithmic (big assumption often made for convenience).
    • ptsneves 2y ago
      The logarithmic part comes from the view point of wealth as a geometric progression. I am not an expert, can you point me to a case where it is not logarithmic?
• bluecalm 2y ago
  I feel the article as well as most of the comments miss the most important difference between the two. Insurance, assuming the fee isn't too high, increases your utility of money while gambling decrease it. If there is an event that happens 1 time in 100 that costs you $100k and you pay $1.05k to insure against that would have a negative expected value in money terms but positive expected value in utility of money terms. It's hard to model utility of money curve, economists often use logarithm for convenience (it's easy to do math on logarithms) but whatever the specifics we know the function is concave. No one rational is going to flip a coin for their net worth or any significant part of it for example. With this in mind insurance is a service worth paying for as long as the fee is lower than utility you gain from it. In a theoretical case that the fee is 0, that is expected value of money when taking the insurance is 0 you should always take it. In the opening example of 1 in 100 event that would be $1k USD fee. Gambling is the opposite: you voluntarily stake money on event that wouldn't otherwise affect your financial situation. This decreases combined utility of you and your counter-party. Utility is higher if you both have $1000 than if one of you have $0 and the other $2000 for example. Gambling, like excessive drinking or other activities that hurt the population as a whole is viewed as immoral by many moral systems. I think it's hard to argue against that - the more gambling there is the worse off the population is going to be. Not so with insurance.
  • mungoman2 2y ago
    Hm I don't follow. Could you please define "expected value in money terms" vs "expected value in utility of money terms"
    • greg_V 2y ago
      It's a convoluted way of saying "use value" vs. "exchange value". A million dollars is a million dollars, or it's a house. I don't need a million dollars but I do need a house or I freeze to death. I can't eat a million dollars worth of food but I need to eat food every day or I die. Gambling is seen as immoral because it's about extending your exchange value capabilities, although most people who gamble are poor as dirt and a winning bet is often about paying your utility bills and having a day out over being able to do neither (while losing bets contribute to being unable to do either). Insurance is seen as prudent because it acts as a fail safe over your use values, be it your health, housing, employment, etc. Social security is basically a system of spreading the odds over the population, forcing everyone to do the small bets to contain the catastrophic outlier probabilities - in theory.
• scott_w 2y ago
  I think the main difference is: In gambling, you want the payout. In insurance, you probably don’t. Why? Because you don’t want that bad thing to trigger it (illness, property damage, death).
  • beaeglebeachedd 2y ago
    A smart gambler might not care about the payout. For instance, if I have a business that partially depends on election of a candidate I may bet against them winning so i recoup my investment if they lose.
    • scott_w 2y ago
      That’s using gambling to hedge your business position, not insuring your business against the potential loss. The bet is only tangentially related your business. If your candidate wins but the revenue you thought you’d get doesn’t materialise, you’d probably wish you’d won your bet instead.
• blueflow 2y ago
  This Question was the part of the Plot of Terry Pratchett's "Colors of Magic". The insurance there is explained like a bet that the tavern doesn't burn down. As a result, the tavern catches fire and causes the great city fire of Ankh-Morpork. https://www.youtube.com/watch?v=BqxABYAKlCI#t=33m17s https://www.youtube.com/watch?v=BqxABYAKlCI#t=33m17s
• 2-3-7-43-1807 2y ago
  you don't really go broke by having too many insurances - at least that's not very common. but you can go broke by gambling and such become a liability to family and friends. actually it makes more sense to compare gambling to _not_ having an insurance. pretty simple.
• Lazare 2y ago
  Fundamentally both "gambling" and "insurance" are about trading a stream of small guaranteed payments for a chance at receiving a large payment. More generally, it's about trading risk. In insurance the risk is transferred to the insurance company; in gambling the risk is trasnferred to the gambler. They're precisely the same transaction, just packaged in different ways, and with tons of overlap. What differs is the participants. Individuals don't tend to want or need a lot of risk, so a transaction where risk is transferred from an individual to a large company (like an insurance company) is generally good, and one where risk is transferred from a large company (like a casino) to an individual is generally bad.
  • foogazi 2y ago
    With life, home, auto insurance you already bought in on one side of the outcome (life, property value) - you are trying to minimize your loss. With a football match you are not staked to either side - gambling event happen everyday around you and have no effect on you.
• vasco 2y ago
  In one you bet on yourself, in the other you bet against yourself.
• wigster 2y ago
  it seems obvious to me... one is a guard against losing stuff you have the other is a short cut to riches you don't
  • mewpmewp2 2y ago
    Also life is full of gambles. Not buying insurance is also a gamble and a statement of gambling. You are betting that the undesirable doesn't happen, and avoiding to pay the insurance. Driving a car is a gamble and a bet that an accident won't happen.
  • AbstractH24 2y ago
    That is a good way to put it. The messy middle between gambling and insurance is "investing".
• locallost 2y ago
  The example of financial derivatives is really strong: on the market it's basically a form of gambling. Will this thing go up and down? Noone knows, but you're a genius if it works and a loser if not. But if you own something and hedge by e.g. getting puts it's a form of insurance. So the instrument is the same, it's the intent that makes it different.
• credit_guy 2y ago
  Easy. You can insure only insurable interest. Your house can catch fire at some point in the next 20 years, and Dallas can beat Boston the NBA finals. Both outcomes are unknown now, and therefore probabilistic events. If you buy fire insurance on your house you can try to rephrase that you placed a "bet" that your house will catch fire. But it's a stretch. If you bet on Dallas, how do you spin it to say it's insurance? Can you claim that you are a Boston fan and you insure against the emotional hurt if Boston loses?
• cainxinth 2y ago
  Insurance spreads unavoidable risks to a larger group so that the brunt can be more easily borne. Gambling creates new risks.
• winternewt 2y ago
  If you enjoyed this article I recommend the "Cautionary Tales" podcast by the same author.
• LorenPechtel 2y ago
  There's another factor that sometimes is in play here: tax treatment. I used to take my employer's dental coverage. I considered the expected value to be "negative" and could easily self-insure. Yet it was a good deal anyway: I could pay the insurance cost with pre-tax dollars, but if I paid out of pocket it was with after-tax dollars. This is also why you periodically see news things about *big* employers taking out insurance on all of their employees. No, it's not an indication they are being unsafe, but taxes. The proceeds from life insurance are tax free. The insurance company invests the money, when it's paid out that's not taxable. Done on a big enough scale the overhead costs are less than the benefit of converting taxable gains into tax free gains.
  • kgwgk 2y ago
    > There's another factor that sometimes is in play here: tax treatment. Indeed. I wish I could "insure" my car's maintenance using pre-tax money.
• AbstractH24 2y ago
  There's nothing wrong with gambling as long as you are aware of the odds and make intelligent decisions based on them. Same with insurance. Where both insurance and gambling go wrong is when people try to appeal to your emotions rather than logic.
  • kgwgk 2y ago
    > There's nothing wrong with gambling as long as you are aware of the odds and make intelligent decisions based on them. Essentially if you’re aware of the odds and make intelligent decisions based on them there is no_____ _____ ____ gambling.
    • AbstractH24 2y ago
      I have no idea what the ____ _____ ____ is supposed to be, but I'm guessing it is a string of negative words. And yes, thats the case. Everything in life is playing the odds.
      • kgwgk 2y ago
        “thing wrong with” - it was a play on the quoted sentence
• marssaxman 2y ago
  I recall Robert Heinlein poking at this question in his book "The Moon is a Harsh Mistress"; the inhabitants of its hardscrabble lunar mining colony have no health insurance system, but they certainly do have bookies, so they place bets against their own ill-health as a means of covering medical costs.