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PaperclipPerfector  6mo ago (text post)   6783 thread views

Small-Scale Question Sunday for May 11, 2025

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

Culture war topics are accepted, and proposals for a better intro post are appreciated.

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A lottery is very similar to insurance.

This is true only in the same sense that negative ten is similar to ten. They're both numbers, right? But they're opposite numbers. Likewise, here one gamble increases volatility (because the payoff is the only random event), and the other reduces it (because the payoff happens only when it cancels out a random expense; the net change from the random outcome is reduced).

But one of the two is supposedly justified while the other breaks their model and makes no sense whatsoever.

It makes sense, for the reasons above. Does it make sense to you too, now? If not, I'm afraid that's probably the best I can do. I've taught grad school math classes, which says good things about my math ability but bad things about my teaching ability...

I understand this is what is taught, I was taught it in uni. Nevertheless, I disagree.

This model of a man they have conjured to justify insurance, is neither a homo rationalis economicus (for whom it would be far too inefficient), nor your neighbour (who enjoys gambling).

There is no good reason to privilege the 'original state', your living standard now. Yes one (insurance) maintains it and the other (lottery) changes it, but why does that matter?

Some people live in a house, but they prefer some randomness in their life, so they take a 50/50 chance of living either in a mansion or a condo. It's fine. I mean I think it's a cool way to live, but it's an aesthetic preference, I would never advise people to essentially burn money to get that volatility (like economics profs are advising people to burn money to get rid of it).

You could say the neighbour is just gambling when he purchases insurance, it's just that he uses the high from winning to compensate for the psychic pain of the loss of his house.

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