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insurance is the exact opposite of gambling, and vice versa

most people think the primary thing about gambling is that overall the casino takes a little of your money. this is true, but not primary.

insurance companies also take a little of your money. but that's ok. insurance is great anyway. most services charge you, so we can't judge gambling that simply.

what insurance does is take a little money from you most of the time (in most universes), but give you a bunch now and then (in a few universes) when (where) you need it most b/c disaster struck. this is great, because it allows you to have a higher minimum quality of life, which is worth the fee, and worth somewhat lowering your max quality of life.

gambling, on the other hand, takes money from you most of the time (in most universes), and gives a large pay out rarely (in a few universes). the basic effect is to make most of your life worse (most universes), but create a few spikes of huge wealth (in a few universes). this is the exact opposite effect that insurance had. this raises the maximum qualify of life you may experience, but at a cost to the minimum.

BTW this mostly applies to gambling that's either high-stakes that you only do a couple times, or to stuff with a very low chance of payout (lottery, maybe slots too, not sure). if you were placing lots of small bets at 49% odds, the effect of gambling would be very minimal, as your luck would almost always average out even within a single gambling session. (so all you'd really be doing is paying the fee to not do much of anything)

Elliot Temple on July 5, 2004

Comments (13)

You're right in your breakdown of playing at a casino, and buying insurance. And the maximum vs minimum difference.


Playing at a casino and buying insurance both involve paying X amount of money on Y chance of gaining Z amount of money back.

And, gambling is defined as (among other things)...

"To take a risk in the hope of gaining an advantage or a benefit."

So we have...

Paying X amount of money on Y chance (risk) of gaining Z amount of money back (benefit).

Sounds like gambling to me.

Dan at 2:28 PM on July 10, 2004 | #1011

insurance isn't risky. you're *guaranteed* to raise your minimum wealth, and you reduce your risk of a catastrophe.

gambling also isn't really risky. it always has the same effect. it's just a bad one.

just b/c the results are somewhat unpredictable *in one universe* doesn't make something a gamble. for example stock portfolios... each individual stock in the portfolio may go up or down in this universe, but overall it evens out. not gambling.

Elliot Temple at 7:43 PM on July 10, 2004 | #1012

Buying insurance is gambling.

You are not guaranteed to raise your minimum wealth.

You are paying to be protected from a particular kind of risk. You might never experience that kind of problem and wind up worse off than if you hadn't purchased the insurance. In fact, that's what happens in the aggregate...the value of the premiums paid exceeds the insurance payoffs. That's why insurance companies make a lot of money.

In a casino you might be betting on a roulette ball landing on a particular number; with insurance you might be betting that your house will catch fire. In both cases the expected cost exceeds the expected benefit.

Some people purchase too much insurance and end up much worse off. Just like people who gamble too much in other ways.

Insurance is still often a good idea, because an individual might prefer paying the negative-expectation insurance premiums to bearing the risk of a particular sort of disaster. Casino gambling can be a reasonable thing to do as well (fun, entertainment, aided wealth fantasies...).

But, insurance won't guarantee you a minimum level of wealth. It won't protect you from being swindled by con men, or from economic changes wiping out your business and the value of your skills. Life will always have risks, and insurance will only protect you from some of them. Whether or not the insurance is a good deal depends on individual circumstances, but it's always a gamble.

The fact that the payoff is tied to a personal disaster doesn't make insurance something other than gambling.

That's an illusion.

Gil at 2:28 PM on July 11, 2004 | #1013


You raise minimum wealth across the multiverse, and minimum possible wealth in one universe.

Minimum wealth should be thought of as average wealth of poorest .0000000000000000000001% of versions of you (or possible versions of your life, for non-multiverse version), or something like that. Not single most disastrous universe/possibility, which would just be broke, unemployed, friendless, alone, hungry, naked, in the rain, sick, about to die.

Elliot Temple at 3:18 PM on July 11, 2004 | #1014

Ok, well I think it would be foolish for me to spend money today to insure against something that's only .0000000000000000000001% likely to happen to me. It's just not worth considering, let alone spending money on.

If you think insurance of that sort is typically a good deal, then I think you're mistaken.

I take much greater risks every time I leave my home.

I'm not saying that one shouldn't buy insurance. I'm saying that it is a gamble. It's a gamble that one is willing to take because the risk of disaster that one faces (however unlikely) seems greater than the cost of the insurance; so one chooses to make a bet on that disaster in order to cover its costs. You're betting with a company that is betting against that disaster occurring and offering you a payoff that will cover it, but costs more than the real expected monetary cost (damage * probability of disaster).

It is a bet, and it is gambling. That doesn't make it bad.

If you're trying to make some more general point about it being a good idea to spend resources to mitigate the risks of our worst-off possibilities, I'd worry about coming dangerously close to justifying socialist redistributionist welfare schemes.

That's the kind of thinking John Rawls was doing in his "A Theory of Justice".

Gil at 11:53 PM on July 11, 2004 | #1015

Imagine the same post, except with me holding down the zero key shorter. Then try responding to that, instead of complaining about something immaterial.

Do you have some argument that it doesn't raise minimum wealth (by my definition) across the multiverse, or across lowest .01% of possibilities? When you look at the effect over many universes or possibilities, it isn't a random gamble.

Elliot at 12:14 AM on July 12, 2004 | #1016

No. It probably does increase the minimum wealth (by your definition).

But, it does it at the cost of reducing the average (or expected) wealth. That's not necessarily a good deal. It depends on your subjective valuation of the particular risks you're considering insuring against.

My quibble is mostly with your choice of calling it "the exact opposite of gambling", when it is actually just a specific type of gambling.

You might say that "It's the exact opposite of the exact opposite type of gambling."

But that's not very interesting.

Gil at 9:13 AM on July 12, 2004 | #1017

yes it reduces avg wealth slightly b/c they charge a fee.

it is the opposite, b/c gambling raises max wealth, while insurance raises minimum. opposite effects.

Elliot at 9:25 AM on July 12, 2004 | #1018

"it is the opposite, b/c gambling raises max wealth, while insurance raises minimum. opposite effects."

Yeah, and walking backwards is the opposite of walking forwards, because you move away from the direction you're facing.

Therefore, it's not walking?

Gil at 9:33 AM on July 13, 2004 | #1019

they are both money redistribution. one redistributes money randomly (gambling) and the other in a targeted way (to fire victims, or whatever). This is not a gamble -- the money always goes to the target.

Elliot at 9:36 AM on July 13, 2004 | #1020

There's not always a fire.

The casino always pays off if the event you bet on occurs, too. That's not the gamble.

The gamble is whether the event you're betting on will occur.

Gil at 12:43 PM on July 13, 2004 | #1021

there is a fire in the multiverse, guaranteed. lots of them burn your house down.

there is the possibility of a fire in this universe, guaranteed. this is the same as the above statement.

and there is some fire in this universe, that burns down some house. if you insist on this *false* classical view, pretending possibilities don't exist or even matter (or only count as a "gamble", instead of having concrete implications), you are still targetting money to fire victims (any, not just you, but maybe you). makes more sense than most charities, no?

Elliot at 4:28 PM on July 13, 2004 | #1022

Of course possibilities matter.

In some universes I buy fire insurance, my house burns down, and my insurance payoff improves my life. In other universes I don't buy insurance, my house doesn't burn down, and I can take advantage of other opportunities with the extra money I saved by not buying insurance (so I'm better off than the I would be in the universes where I bought insurance and my house didn't burn down). It's a gamble; just like the various universes where I win or don't win the lottery (with or without the money I might spend on the lottery tickets).

Insurance is just a type of gamble where the event I'm betting on is a personal catastrophe, so the payoff will mitigate that for me. This may or may not be a good deal for me depending on the terms and my valuation of the risks.

I also think buying insurance is a bad way to provide charity to fire victims. I think I'll be better off separating my insurance-buying decision from my disaster-victim charity-giving decision. My buying a policy won't cause someone to get paid who otherwise wouldn't have. What it will do is add to the security of the insuance company's policy-writing investments. That's not my favorite charity. If I want to help disaster-victims, I think I should help them directly, or through a charity like the Red Cross that does this; then I know my money will be used this way.

Gil at 8:19 PM on July 13, 2004 | #1023

What do you think?

(This is a free speech zone!)