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NancyLebovitz comments on Buy Insurance -- Bet Against Yourself - Less Wrong
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Find an outcome that would make you financially miserable, and bet on it such that if it comes to pass you won't be financially miserable. In a sufficiently non-rational market (ie people betting on things because they want them to happen) the size of the bet will not make you financially miserable if the outcome doesn't happen and you lose the bet.
I think this is the core idea of the post, and the stuff under the headings is some of the positive results of this course of action, not necessarily a justification for it.
This is reminding me of The Quants, and not in a good way.
It's a book about some very smart people who thought they could beat the stock market by making large bets on what they thought would go up and smaller bets on what they thought would happen if the first bet was wrong.
They didn't have enough experience to realize that both their bets could go wrong.
I think the second bets were apt to involve margins.
So it is extremely important that you critically evaluate whether the market is sufficiently non-rational, and that you attempt to find out the possibility of a third outcome that doesn't satisfy the bet but still makes you financially miserable (eg User:Kevin bets on not-Obama, Obama wins, Obama cracks down)
Yeah.
I strongly recommend The Quants. It's very interesting about how the guys who invented the systems (notably Edward Thorp) understood the theory underlying the math better, and had clear ideas about how much it was safe to bet. The later mathematicians and (iirc) physicists just looked for the big win.