To whom it may concern:
This thread is for the discussion of Less Wrong topics that have not appeared in recent posts. If a discussion gets unwieldy, celebrate by turning it into a top-level post.
(After the critical success of part II, and the strong box office sales of part III in spite of mixed reviews, will part IV finally see the June Open Thread jump the shark?)
Should we buy insurance at all?
There is a small remark in Rational Choice in an Uncertain World: The Psychology of Judgment and Decision Making about insurance saying that all insurance has negative expected utility, we pay too high a price for too little a risk, otherwise insurance companies would go bankrupt. If this is the case should we get rid of all our insurances? If not, why not?
I'd like to pose a related question. Why is insurance structured as up-front payments and unlimited coverage, and not as conditional loans?
For example, one could imagine car insurance as a options contract (or perhaps a futures) where if your car is totaled, you get a loan sufficient for replacement. One then pays off the loan with interest.
The person buying this form of insurance makes fewer payments upfront, reducing their opportunity costs and also the risk of letting nsurance lapse due to random fluctuations. The entity selling this form of insurance r... (read more)