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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

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.
- leashless 2y ago
  Oh I meant from the perspective of the one selling the insurance, not the person buying it.
  - high_na_euv 2y ago
    Then how is this valid? >In gambling you expect to come out behind in the average case. Casino usually wins :)
xboxnolifes 2y ago
Insurance is not about coming out ahead on the average case. In fact, it's the insurance company that comes out ahead when you average everything (otherwise they wouldn't be a business). You pay for insurance to come out ahead of (or equal to) the 40th(-ish) percentile cases.
chadcmulligan 2y ago
> In gambling you expect to come out behind in the average case. Depends on the game - poker for example (home game not at a casino, no rake), on average no one wins or loses.
AbstractH24 2y ago
Is gambling irrational if you are the house or bookmaker's side of the transaction?

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.

leashless 2y ago
Oh I meant from the perspective of the one selling the insurance, not the person buying it.
- high_na_euv 2y ago
  Then how is this valid? >In gambling you expect to come out behind in the average case. Casino usually wins :)

xboxnolifes 2y ago

Insurance is not about coming out ahead on the average case. In fact, it's the insurance company that comes out ahead when you average everything (otherwise they wouldn't be a business). You pay for insurance to come out ahead of (or equal to) the 40th(-ish) percentile cases.

chadcmulligan 2y ago

> In gambling you expect to come out behind in the average case. Depends on the game - poker for example (home game not at a casino, no rake), on average no one wins or loses.

AbstractH24 2y ago

Is gambling irrational if you are the house or bookmaker's side of the transaction?