4 ms·

> not getting any utility from the product My emergency food supply, that perishes/expires/gets thrown out periodically - am I getting any utility from it?

rz2k 14y ago
Yes, and the same goes for overstocking the regular pipeline of food distribution, such that some is thrown out due to spoilage, but shortages are rare. If it were possible to have as few shortages with less spoilage, that would be a pareto efficient improvement that did not entail a tradeoff. If you could have an emergency food supply without throwing out as much food, you'd have less waste, but if you stop stocking up for emergencies then you lose the utility of the security you get from having an emergency supply. You could forgo this security, but it isn't possible to analyze whether this would be better without good information on the exposure to risks and perfect insight into your own preferences, and how you might rank the security in comparison to the next best thing you'd purchase. It is a parallel situation to the main purpose\* of insurance. In the general case, the odds of a bad event occurring multiplied by the cost of paying for that event will always be less than the cost of purchasing insurance to cover that event. However, buying insurance is not implicitly an inefficient decision, because you are buying with insurance is some of the insurer's higher risk tolerance, obtained by pooling together all of its clients' risk. \* There are some other dynamics at play. Information asymmetries mean that the insurance companies actuaries may have a better idea of your actual risk than you do, and you may privately know that you will do something more risky than you lead them to believe. Furthermore, in the case of health insurance you are also purchasing the insurer's bargaining expertise which can dramatically lower how much is paid for a procedure.

rz2k 14y ago

Yes, and the same goes for overstocking the regular pipeline of food distribution, such that some is thrown out due to spoilage, but shortages are rare. If it were possible to have as few shortages with less spoilage, that would be a pareto efficient improvement that did not entail a tradeoff. If you could have an emergency food supply without throwing out as much food, you'd have less waste, but if you stop stocking up for emergencies then you lose the utility of the security you get from having an emergency supply. You could forgo this security, but it isn't possible to analyze whether this would be better without good information on the exposure to risks and perfect insight into your own preferences, and how you might rank the security in comparison to the next best thing you'd purchase. It is a parallel situation to the main purpose\* of insurance. In the general case, the odds of a bad event occurring multiplied by the cost of paying for that event will always be less than the cost of purchasing insurance to cover that event. However, buying insurance is not implicitly an inefficient decision, because you are buying with insurance is some of the insurer's higher risk tolerance, obtained by pooling together all of its clients' risk. \* There are some other dynamics at play. Information asymmetries mean that the insurance companies actuaries may have a better idea of your actual risk than you do, and you may privately know that you will do something more risky than you lead them to believe. Furthermore, in the case of health insurance you are also purchasing the insurer's bargaining expertise which can dramatically lower how much is paid for a procedure.