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Nornagest comments on Buy Insurance -- Bet Against Yourself - Less Wrong
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Comments (68)
According to the post: "the best-informed actors in the market will make their money from the least-informed actors". If you bet without paying any attention to the most likely outcome, you are more likely to be among the least-informed actors - and so will lose money on top of the transaction charges for playing.
Insurance doesn't appeal to everyone. Many of my countrymen regularly play the National Lottery - increasing their risk-taking, not minimising it. Basically, insurance people always take their cut - which makes insurers poorer, on average. Minimising your risks is an especially poor strategy for males.
This post is trying to sell readers on insurance. However, I don't want insurance, thank you!
Insurance is as far as I can tell a hedge with particularly high overhead, but it is a hedge. You're paying to reduce your exposure to unwanted risk -- a move that as you correctly deduce averages out to putting less money in your pocket, but which can nonetheless be quite rational when you take into account the Gambler's Ruin and similar effects.
There's also the psychological effects of risk to consider, as well as the diminishing-returns effect that TobyBartels mentioned.