Is insurance always evil/stupid?

[Shadowrun]

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People that don't believe in insurance believe that life revolves around expected value. They feel that if something is -EV it is incorrect. These are the same people that think when someone pulls a 1 outer on the river that they are cursed or unlucky.

Insurance, nor insurance people are "evil." Insurance is used to avoid catastrophic events that could ruin your life. And like a previous poster said, it may be worth a little -EV to be able to sleep at night.

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again the whole point of me making this thread and providing the two examples is to show that insurance doesnt HAVE to be -EV and can be in fact +EV or Neutral EV.

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It depends on whether the V in EV is solely monetary

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okay, im not arguing with that, it just seemed to me that people were thinking that insurance is INHERENTLY -EV which is not always the case.

[Borodog]

Uh, who exactly is it that thinks "insurance" is evil?

Whenever you are risk averse and/or the risk of ruin is large, insurance makes perfect sense. You are buying down variance for a small price in EV.

[mosdef]

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Uh, who exactly is it that thinks "insurance" is evil?

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People with linear utility curves?

[Shadowrun]

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Uh, who exactly is it that thinks "insurance" is evil?

Whenever you are risk averse and/or the risk of ruin is large, insurance makes perfect sense. You are buying down variance for a small price in EV.

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there was a thread a while ago in oot where some one made that comment (basically saying insurance/insurance salesman are evil etc.) im not sure if it was in jest or not.

other than that i thought it would be an interested thread for discussion.

[mosdef]

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Uh, who exactly is it that thinks "insurance" is evil?

Whenever you are risk averse and/or the risk of ruin is large, insurance makes perfect sense. You are buying down variance for a small price in EV.

[/ QUOTE ]

there was a thread a while ago in oot where some one made that comment (basically saying insurance/insurance salesman are evil etc.) im not sure if it was in jest or not.

other than that i thought it would be an interested thread for discussion.

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A while ago pvn made a post saying that buying insurance increases variance, which seems like lunacy to me. I asked him what he meant, but he either didn't respond or I missed the response.

[Borodog]

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Uh, who exactly is it that thinks "insurance" is evil?

Whenever you are risk averse and/or the risk of ruin is large, insurance makes perfect sense. You are buying down variance for a small price in EV.

[/ QUOTE ]

there was a thread a while ago in oot where some one made that comment (basically saying insurance/insurance salesman are evil etc.) im not sure if it was in jest or not.

other than that i thought it would be an interested thread for discussion.

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A while ago pvn made a post saying that buying insurance increases variance, which seems like lunacy to me. I asked him what he meant, but he either didn't respond or I missed the response.

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Well if he was referring to moral hazard, it's not lunacy at all. If you have influence over the likelihood of the loss occuring, and you mitigate the consequences that you incur if the loss occurs, you will be more likely to engage in the activities that can lead to the loss. It's a simple effect of incentives, and it is very well understood.

[mosdef]

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Well if he was referring to moral hazard, it's not lunacy at all. If you have influence over the likelihood of the loss occuring, and you mitigate the consequences that you incur if the loss occurs, you will be more likely to engage in the activities that can lead to the loss. It's a simple effect of incentives, and it is very well understood.

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I am reluctant to go into detail because I am going on memory only, but as I recall he was comparing the two strings of cash flows (with and without insurance) and saying that the with insurance cash flows has less variance. I will try to dig up a link later - I have to run at the moment.

[pvn]

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A while ago pvn made a post saying that buying insurance increases variance, which seems like lunacy to me. I asked him what he meant, but he either didn't respond or I missed the response.

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I did respond. Basically, it was a smart-ass way of looking at things from a different perspective. Insurance doesn't actually prevent a big loss; it merely provides you with a jackpot at the same time as you sustain the loss. You're going to have the loss regardless of whether you have insurance or not (well, for the most part; sometimes people will change their habits based on their insurance status).

The loss increases your variance. The insurance payout increases it as well - but in the opposite direction; they cancel out, but you still have two instances of variance (where you'd only have one without insurance). Good variance is still variance.

Compare two scenarios, one without insurance, and one with.

Without insurance: you have a wrecked, unusable car, and possibly a bunch of liability debts.

With insurance: you have a shiny new car, and possibly a bunch of settled liabilities.

Jackpot!

[mosdef]

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A while ago pvn made a post saying that buying insurance increases variance, which seems like lunacy to me. I asked him what he meant, but he either didn't respond or I missed the response.

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I did respond. Basically, it was a smart-ass way of looking at things from a different perspective. Insurance doesn't actually prevent a big loss; it merely provides you with a jackpot at the same time as you sustain the loss. You're going to have the loss regardless of whether you have insurance or not (well, for the most part; sometimes people will change their habits based on their insurance status).

The loss increases your variance. The insurance payout increases it as well - but in the opposite direction; they cancel out, but you still have two instances of variance (where you'd only have one without insurance). Good variance is still variance.

Compare two scenarios, one without insurance, and one with.

Without insurance: you have a wrecked, unusable car, and possibly a bunch of liability debts.

With insurance: you have a shiny new car, and possibly a bunch of settled liabilities.

Jackpot!

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Sorry that I missed your response. I didn't mean to imply that you ducked my question.

Also, I think your view is fundamentally wrong. The only thing that's important is the net gain or loss due to the event. The fact that the actual event is a big loss plus a big gain doesn't make it more "variant". If the gain is larger than the loss (or vice versa), that's a case of someone having too much or too little insurance, not an increase in variance introduced by the contract.

[prohornblower]

I can't think of any other industry in the private sector which gets paid before performing a service, at least not to this extent.