In insurance you expect to come out ahead in the average case.
In gambling you expect to come out behind in the average case.
Therefore insurance is rational and gambling is irrational.
In gambling you expect to come out behind in the average case.
Therefore insurance is rational and gambling is irrational.
Not financially, no. On average people who buy insurance receive less in payouts than they pay in in premiums. If that were not the case, nobody would sell insurance because anyone who tried to would go bankrupt.
If you factor in the non-financial benefit of risk avoidance, then yes, people who buy insurance come out ahead--but now not just in the average case, but in all cases, at least as long as the people buying insurance are rational and only buy the amount of risk avoidance they actually need.
>In gambling you expect to come out behind in the average case.
Casino usually wins :)
Depends on the game - poker for example (home game not at a casino, no rake), on average no one wins or loses.
It just means that reimbursing you for your loss is worth more to you than the insurance company, because it's harder for you to recover form a (e.g.) $10k loss than for the insurance company.
When priced correctly, and depending on your wealth, on average insurance can be a win-win (i.e. profitable) transaction for both parties. That's why it's economically useful.
See: https://two-wrongs.com/the-misunderstood-kelly-criterion.htm...