Casinos as a Business Model | Hacker News Reader

Casinos as a Business Model

satisologie.substack.com

39 pointssova28 comments

> Insurance Companies play a similar game, based on the observation that a promise is a sellable good, and with enough statistics about various events occurring and their likelihoods, one can sell an unfair (worse than even) chance to retrieve the value of the promise.

Many insurance companies actually sell contracts below the fair price and earn money on the float.

If it's possible for them to earn money on float via investments or otherwise, the float must have higher NPV than their expected payouts, no?

Yes, expected value must be measured against some reasonably risk-less rate of return (such as government backed bank accoutns, bonds, or similar).

In addition to that many of the largest insurance companies are also “mutual”. So they’re owned by the policy holders and any profits they accrue are distributed across the insurance pool.

Does that just mean that less capital is required to back the pool -- or is it a statement about morality?

Neither. Because of the nature of the business, it's far easier to run an insurance company when you take a 5-10 year outlook as opposed to the quarterly cycle that public companies deal with.

Insurance companies also invest the premiums. Having a pool of profitable investments to help cover their obligations is part of the business model.

That's the same thing as comment about float. Warren Buffett frequently talks about float. At Berkshire, they attempt to both sell premiums at a fair price AND win with float. Seems to have worked well for them.

I've seen advertisements for term life insurance with the premise that if you outlive the term, you get your premiums refunded. It was significantly more expensive than equivalent conventional term insurance.

I assume that was a high enough price to be basically covering the real wholesale cost of the death benefit, and an investment package to cover the risk of reimbursement.

This is very poorly written.

I actually was wondering if this was a GPT-3 generated blog. It feels like one.

My comments on social networks, insurance companies, and casinos sharing a similar business model strike a tone similar to a neural-network generated text? Is it the cavalier use of colloquial language? I often see "this looks like it was written by GPT-3" on HN, it seems like a trendy thing to place as a comment for writing styles one disapproves of.

That's a really cutting edge way to be incredibly rude.

Care to be more specific?

I'll bite. I actually became disinterested partway through reading and closed to read some comments, so judge for yourself if you're at all interested in my pov :)

I'm also not a blogger myself, so my feelings won't be backed by writer experience, I'm just replying to try and articulate my own (subconscious) thought process when deciding that I don't want to read something anymore, in the hope that it can be somewhat helpful. I mean no disrespect.

I have to say I struggled through the analogy of the coral reef. In the end, once I understood what the analogy was visualizing, I came away with the impression that it only detracted, instead of adding to, my understanding: I had the idea that I understood the situation with the reef because of my understanding of social networks, instead of the other way around. This gives, of course, a disjointed feeling.

I checked out when I started reading the section on Access and Availability. The section started with another setting: that of a 4th grader, and then moved to another setting, the gravity of molecules. We've had a lot of settings now: casinos, insurance companies, social networks, coral reefs, and now these two. That's a lot to keep in mind. I just now saw that there is also the mention of pizza dough as well!

That may be why commenters are relating this to gpt3: the narrative jumps all over the place, never resting anywhere- just like the neural netwerk does!

I'm not saying you cant use all these settings in the text. But sticking to a single analogy, at least in the opening segments, would have brought a lot of clarity to this text. That way I as reader would also feel that you stay closer to your stated topic, which would make for more interest in reading your post.

There are other points to be made here, but I'll leave that to others.

Thanks for the descriptive analysis. Will use your feedback to improve in writing.

What is interesting to me is the economics of buyers and sellers within a Casino. People are buying knowingly, or possibly oblivious to not knowing at all that the odds are not in your favor. And yet the buys (providers) and sellers are here and trading with each other.

it's entertainment. what are the "odds" when buying tickets and popcorn at the movie theater?

Just don't try to algorithmically beat the house ;-)

The casino outcome is a zero-sum game.

Quite different from social network advertising, where an advertiser "catching" a consumer with a relevant ad, is win-win.

But who says you need product or service you buy. Many people buy compulsively. There is a reason why companies hire psychologists and psychiatrists to create ads.

You are generalizing edge cases

There is no data that supports your arguments of this being a mainstream issue

Drugs are not mainstream issue but yet War on Drugs is raging for the last 50 years.

Valve has an open role for a psychologist right now to devise experiments--and their experimental population is their userbase.

Efficient market hypothesis and all that: they gonna hire these people if it doesn't work?

Where's their IRB?

The house wins in a casino. The advertiser and the house win in a social network. They do not appear all that different from the perspective of the consumer. But I can understand the viewpoint that if a consumer is introduced to something useful they had a need for, but did not otherwise know how to fulfill, it could be seen as a "win-win." Some purchases are, indeed, satisfaction fulfilments, or full-circles on unmet satisfaction flows; while some fish will find themselves in a new and excellent aquarium [to stretch the analogy], not all fish delight in being caught. It depends on perspective: that of the platform owner, that of the advertiser, and that of the consumer, for what the [relative] benefit is. I still maintain that they are strikingly similar business models. One could argue that the dopamine rush one gets from playing slots is relevant and also a "win-win." If the distinction is in the end result (useful product or service versus transient dopamine rush) then your statement makes much sense, but aside from that I see no striking difference between the operation of these businesses.

Casinos are a zero-sum game, in a similar vein as the insurance market.

The house wins for both products (ie casinos and insurance providers). Buyers wager a small amount of money, hoping to either win a large amount (casino), or to pay off a claim/catastrophe (insurance).

Aside, casinos provides short-term fun for consumers. A small percentage are large winners, virtually all lose money, and a small percentage become addicted and lose a ton of money.