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No, because the amount of money you have in a bank account accumulates linearly, so you can only pay up to what you have put in. With insurance, you can get a p

No, because the amount of money you have in a bank account accumulates linearly, so you can only pay up to what you have put in. With insurance, you can get a payout more than what you have contributed up to that point, which is necessary for covering catastrophic damages.

StackRanker3000 2y ago
But in this hypothetical the insurance company has perfect information, so they won’t sell you that policy that has to be paid out for more than you’ve contributed. It’s just a thought experiment, but the more information they have on us, the more relevant it becomes.
- ses1984 2y ago
  They can’t predict the future, they can’t predict exactly when you’ll get in an accident. Perfect information means they know your risk level to the best possible accuracy, which would really only apply to populations. Perfect information means they insure 1000 people and predict they’ll have one bad accident per year. After ten years they covered for ten accidents. All ten could have occurred in the first year and they would still be correct.
  - StackRanker3000 2y ago
    > They can’t predict the future, they can’t predict exactly when you’ll get in an accident. That’s why it’s a thought experiment, and not real life. > Perfect information means… No, that’s not what was meant by perfect information in this instance.
    - ses1984 2y ago
      Then it’s a boring thought experiment. It hardly deserves the name “experiment”.
      - StackRanker3000 2y ago
        Sure. I can’t speak for Scoundreller, but I don’t think it was meant to be particularly interesting, just pointing out to wbl that if insurance was to become perfectly fair, it will also have become pointless.
        ses1984 2y ago
        There’s a pretty big leap between perfectly fair and having perfect knowledge of the future. You can know that a fair coin gives exactly 50% chance to flip heads or tails without knowing what the outcome of the flip is going to be.
        StackRanker3000 2y ago
        The original context was unsafe drivers, with the gist of the response being that when you have everyone paying for exactly the costs they themselves incur, insurance has become meaningless. It’s hyperbole of sorts, but it highlights that until such a time, raising the cost of insurance doesn’t just punish the people who actually cause the damage.
        ses1984 2y ago
        Except insurance also covers for costs that are not your fault or not anyone’s fault. An insurance premium could be divided into two components: one based on individual risk and the other component based on no-fault risk that applies to pretty much everyone equally. How are you going to get bad drivers to pay for hail damage? How are you going to get bad drivers to pay for a tree falling on your car? How are you going to get bad drivers to pay for an accident caused by a random tire blowout? The personal risk component can be accounted by “perfect” information and that component can get bigger or smaller depending on your definition of perfect, but there’s another component which can’t.
    - deleted 2y ago
      [deleted]
drawkward 2y ago
With interest, the growth is superlinear

StackRanker3000 2y ago

But in this hypothetical the insurance company has perfect information, so they won’t sell you that policy that has to be paid out for more than you’ve contributed. It’s just a thought experiment, but the more information they have on us, the more relevant it becomes.

ses1984 2y ago
They can’t predict the future, they can’t predict exactly when you’ll get in an accident. Perfect information means they know your risk level to the best possible accuracy, which would really only apply to populations. Perfect information means they insure 1000 people and predict they’ll have one bad accident per year. After ten years they covered for ten accidents. All ten could have occurred in the first year and they would still be correct.
- StackRanker3000 2y ago
  > They can’t predict the future, they can’t predict exactly when you’ll get in an accident. That’s why it’s a thought experiment, and not real life. > Perfect information means… No, that’s not what was meant by perfect information in this instance.
  - ses1984 2y ago
    Then it’s a boring thought experiment. It hardly deserves the name “experiment”.
    - StackRanker3000 2y ago
      Sure. I can’t speak for Scoundreller, but I don’t think it was meant to be particularly interesting, just pointing out to wbl that if insurance was to become perfectly fair, it will also have become pointless.
      - ses1984 2y ago
        There’s a pretty big leap between perfectly fair and having perfect knowledge of the future. You can know that a fair coin gives exactly 50% chance to flip heads or tails without knowing what the outcome of the flip is going to be.
        StackRanker3000 2y ago
        The original context was unsafe drivers, with the gist of the response being that when you have everyone paying for exactly the costs they themselves incur, insurance has become meaningless. It’s hyperbole of sorts, but it highlights that until such a time, raising the cost of insurance doesn’t just punish the people who actually cause the damage.
        ses1984 2y ago
        Except insurance also covers for costs that are not your fault or not anyone’s fault. An insurance premium could be divided into two components: one based on individual risk and the other component based on no-fault risk that applies to pretty much everyone equally. How are you going to get bad drivers to pay for hail damage? How are you going to get bad drivers to pay for a tree falling on your car? How are you going to get bad drivers to pay for an accident caused by a random tire blowout? The personal risk component can be accounted by “perfect” information and that component can get bigger or smaller depending on your definition of perfect, but there’s another component which can’t.
  - deleted 2y ago
    [deleted]

drawkward 2y ago

With interest, the growth is superlinear