Hacker News Reader

Comment by rayiner | Hacker News Reader

By the logic of this article, buying anything makes you a sucker. A store would never sell you something unless they were coming out ahead, after all.

Insurance companies sell certainty. You buy insurance if you value that certainty more than the cost of your premiums. The insurance company wins, because they get the premiums, and you win, because your net value is greater than the premiums you pay.

View on HN

There's a huge difference between insurance and buying stuff from a store -- at a store I buy things when I have a higher utility for the item than the cost to the manufacturer to produce and sell it to me. Insurance is a zero-sum game. Actually, the article addresses that:

    "The difference is quite fundamental. It’s that insurance is fundamentally
    zero-sum — the only transaction is money going back and forth. When you 
    buy a refrigerator, say, your value for it is huge. (If refrigerators cost
    $50k you’d probably suck it up and buy one — how the hell are you going to
    live without a refrigerator?) So you come out way ahead when you get it for
    [I haven’t actually the faintest clue what a refrigerator costs]. And
    Maytag or whoever does too. Win-win! Insurance is fundamentally either 
    win-lose or lose-win."

Insurance is only zero-sum if there is no value in certainty, which is just plain false (huge amounts of money are spent managing and trading risk).

I think that's kind of the point of the article: When you can afford the worst case, there really isn't any value in certainty.

Reply on news.ycombinator.com