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Comment by ivancho | Hacker News Reader

You haven't demonstrated most of these assertions. For example, if everyone gambled against everyone else every second, then that system has a pretty good chance of staying close to equilibrium for a long time, whereas your model indicates that the total utility would be depleted almost immediately. Whereas if everyone was fully insured for absolutely every risk in their life and immediately received a replacement of the exact same value on any loss, then the overall system would just steadily trend to all the money ending at the insurer, which doesn't seem like increased total utility

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>>You haven't demonstrated most of these assertions. For example, if everyone gambled against everyone else every second, then that system has a pretty good chance of staying close to equilibrium for a long time

>>whereas your model indicates that the total utility would be depleted almost i

Can you describe specific assumptions about how that "everyone gambling against everyone else" would look like? I just don't see how my model could predict total utility being depleted very quickly while the model having good chance to stay close to equilibrium.

My model is very simple: apply utility function on wealth. When you model people flipping coins against each other you will see a lot of busted ones and a lot of rich ones pretty quickly and that will mean significant utility decrease.

Ok, take 100 people, with $100 each, and have one round of $1 coin flips between each 2. A significant number of bets overall, 4950. Each person has wagered 1% of their net worth 99 times, something that we all agree sounds quite scary. And yet there will be no busted people, most will likely be between $80 and $120. Repeat this 10 times, a ridiculous amount of gambling - still most likely no bankruptcies, and the total utility, if we assume log, has barely dropped by 1%.

I simply do not believe that we are making such a subtle societal optimization by frowning upon gambling while encouraging all kinds of other risk taking, like investments and properties.

And the other scenario where insurance just acts as a drain on the overall system seems to indicate that it is not inherently positive for utility either

It's unlikely anyone's busted but utility is unquestionably lowered. A negative for society. Insurance increases equality, gambling lowers it.

This is a bit of a stretch from what I said - 1% drop after the entire population has gambled through 10x their net worth is not meaningful. I also pointed out other speculative activities which we encourage, presumably because they compensate by growing the economy. Insurance might preserve or increase equality, but it also might extract so much rent that the overall utility is lower. There is simply no cut and dry explanation - for some parameter choices things work the way you say, and for some they don't

I think you are simply wrong about your assumptions. If the system is semi-stable the total utility won't decrease that much. If it's not stable it will. I am not sure exactly what you are missing there but maybe that it's expected utility going down, not utility going down with every outcome. For example if people with 80 and 120 net worth flip a coin for 20 it might be go up or it might go down but u(60) + u(140) < 2x u(100). Maybe that's why you utility model predicts the total utility collapsing quickly while in fact it predicts slow utility decrease (if the whole setup is close to being stable).

My model was not to demonstrate that utility doesn't go down ever, it was to show that it can do that extremely slowly, which makes the utility argument about why we discourage it societally a bit weak - we're clearly not very good at discouraging any other behaviors resulting in long-term bad outcomes (for society or the planet), and we reward all sorts of risk-taking.

I think the simpler explanation is that gambling is seen as addictive and destructive on an individual level, and there is no need for total utility to explain why that's undesirable

well you can hedge your bets, a form of insurance. people do this with stock too.

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