I doubt we would be considering having a baby if we weren’t insured and couldn’t scrape up the cash to insure Tater. (And it will be a bit of a stretch.)
At any rate, let’s dispel the myth that libertarians eschew insurance. Quite the opposite.
Your "friend’, if he even exists, is simply wrong. Let’s not waste time debating a phantom.
Er… “If he even exists?” Not cool. Give me credit for not being that kind of poster here. I don’t lie. I don’t make shit up. I’m trying to fight ignorance, not least my own. Imputations of dishonesty won’t help any.
I readily admit I don’t know enough about the subject. That’s why I asked for help. I don’t know if the guy is really a libertarian or not: he says he is. He cites Ayn Rand as a source. If he’s wrong, well, great: makes it easier for me to refute him.
I think by rational in this context they mean the homo economicus view of economic actors making decisions based solely on costs and benefits. However we appear to be wired to make “non-rational” decisions, and there is even some evidence that chimps are too. Risk aversion is wired in also. I personally think it is rational to spend some extra money for peace of mind. However it is good to examine the alternatives. I live in earthquake country, and I don’t have earthquake insurance because it is very expensive, has a very high deductible, and you are likely better off saving the premiums in case of disaster - and having them if disaster waits until I die or move. But it sometimes makes me nervous.
The question of what good insurance you don’t use is is not stupid. I don’t think all that many people think in terms of expected utility - once it gets pointed out it should be obvious.
Plus I don’t think the OP generalized from this case to all objectivists, let alone all libertarians.
God, no! For one thing, libertarians are so incredibly diverse, they are all but wholly immune from generalization!
As you say, the question isn’t stupid. (Otherwise, wouldn’t I be stupid for not knowing how to answer it?) Seriously, I didn’t know the answer, and that’s why I came here to ask.
Do you trust that when you file an insurance claim that it will be paid? If one has only 50% confidence that a non-false claim will be paid, might one say that economically, that person values insurance less as they do not place total confidence in the claims payment process?
I guess that level of distrust would have to be a “discount” against the real utility of the insurance policy. I might get lower premiums from Bill and Bob’s Fly By Nite Insurance, but I’d have to balance that against the higher probability that they would default (simply go bankrupt, or skip the country) than, say, one of the major, reputable companies.
Does it matter what Rand would think?
Not exactly Frontline type of documentary reporting by any means, but in“Sicko” it wasn’t about those without health insurance, it was about those that had it, and still had to file bankruptcy.
Your friend ignores probability.
For example, a lottery ticket has no intrinsic value; it is simply a piece of paper. But one that is “in play” (i.e., not a winning ticket or losing ticket, but one who’s status is still up in the air), has the value of the jackpot times the probability of winning that jackpot. (Which is always less than the price of the ticket by the way. Which is why “the lottery is a tax on people who can’t do math”.)
That value isn’t much, but it’s still there, and calculable.
Does your friend doubt the value of stock markets? Gambling?
For that matter, every time you pay for something before you receive it, you are “gambling” that you’ll receive the item you paid for. The probability is much higher that you’ll receive the payout than in the case of a lottery ticket, but it is still a bet.
Insurance, gambling, stock markets, first dates, “application fees” and many other things with only a probabilistic value still have lots of people buying them. Why would someone voluntarily give up money for something that has no value or utility to them? The answer is that the “chance of a reward” has value, even if slightly discounted from the value of the actualized reward itself.
Only to the degree that he presented himself as a follower of Ayn Rand, but seems to hold opinions that differ from hers significantly. Not wholly relevant, but I did mention it in the OP, so it’s fair game.
I had thought there were occasions when that value actually exceeded the price of the ticket. e.g., if there’s a 10 million dollar jackpot, and only 9 million people have bought tickets. If tickets are a dollar each, and if the whole jackpot is given to one winner (I know that isn’t how it actually happens, but for example) then each one dollar ticket is “worth” $1.11.
Of course, here, you break into the weird world of very low probabilities and very high consequences. If there’s only a one in a million chance a dam will break, but if it does, a million people will die, it doesn’t really help to say that the expected cost in lives of that dam is one person. It’s true in one way, but not useful. The probability distribution curve is level with a gigantic spike at one end, far removed from the bell curves we’re more accustomed to reasoning with.
Everything you say is true. It’s just…lumpy.
I don’t know. If I understand the principle correctly, maybe. On the average, if I walk into a casino in Las Vegas, I expect to come out having lost some money. I might still gamble for the fun of it (and with a limit!) but I would absolutely remind myself that it’s for entertainment, not for expected value. The expected value is always negative in gambling!
(Unless you’re a card-counter, and that seems to have run its course.)
Likewise, when I buy using a credit card, the bank is betting that I’ll pay it back. It doesn’t always happen: people do default.
All of this makes sense. These are all the good answers I was unable (because of my own ignorance) to use. This is why I opened the thread; I felt the position was wrong, but I didn’t know why.
Usually doesn’t stay that way for long, and seldom up to the point of the drawing.
Here you get into the realm of marginal utility. For most people the value of a single dollar is fairly low, less than one millionth of $1,000,000. (Not for a kid who gets $1 a week allowance, though.) Look it up, and you can even see the curves. It goes for lots of stuff - the marginal utility of your first ice cream cone is quite high in the summer, your fifth, not so much unless you are in an eating contest. The value of the next $1,000 for Bill Gates is pretty low. Both tax rates and first class air fares depend on this.
BTW, you are right about probability - people in general are bad with very low probability events, over-estimating their likelihood.
I’d heard the term “marginal utility,” but didn’t know what it meant. Thank you!
(Being a math and physics nerd, I’d have called it “delta utility.”) But, yeah, it makes entirely good sense. The difference (margin or delta) between my twentieth and twenty-first thousand dollars is a lot less than the difference between my second and third thousand dollars.
(And, for a condemned man, the last hour is a lot more dramatic than the nineteenth-from-the-last hour.)
You just answered your own question. There are not occasions when that value exceeds the price of the ticket because that is not how the lottery works.
Well, not exactly. The highest-paying jackpot can still be a remarkably high proportion of the overall payout. I was simplifying the analysis, but not excluding anything. I didn’t actually “answer my own question,” but only tried to avoid the level of complexity of a full analysis.
Voyager notes that unbalanced lotteries don’t tend to stay that way. I guess the word gets out, and people start hitting the outlets. I’ve seen some remarkably long lines.
I Googled, and found this interesting analysis. What seems to push down the value of a ticket isn’t the distribution of subsidiary prizes, but the high likelihood of two or more people having to share the big prize. As the number of tickets sold goes up, so does the probability of a shared jackpot. And that is the killer. Without that factor, a big lottery might well be a “good investment” (in the abstract.)
(The analysis also notes the effect of taxes. That ten million dollar prize isn’t going to put ten million dollars in my pocket. It rockets me immediately to a high income tax bracket. Oopsie.)
Anyway, never mind, side issue not relevant to my main question (which has pretty well been answered.)
I didn’t mean it’s an irrelevant topic to the thread and shouldn’t be discussed. It was mostly in response to John Mace saying you should have just pointed out that Ayn Rand wouldn’t agree. But that would be a non sequitur in your discussion with your friend (not in this one) and wouldn’t undermine his position at all.
Aren’t there lotteries where there may be no winner in a drawing, so the jackpot continues to grow?
If all the participants have an equal probability of taking the entire jackpot, and their probabilities do not sum to 1, and there is no profitable load taken by the operators of the lottery (in other words if the lottery is on average a neutral investment), then a situation may arise where the jackpot is not won during a given drawing. Now, by buying a ticket for the second drawing, you get a probability of winning that is worth more than the ticket price.
Of course real lotteries have profitable loads extracted by the operators, but this just increases the number of times in a row the jackpot must not be won to create the condition.
Note that I am talking about value from the point of view of a potential player who was not one of the ones who bought tickets in the earlier rounds.
Oops, my misreading, sorry. I can’t know, but I suspect that my friend, thinking himself a follower of Ayn Rand, would simply have rejected my correction, believing himself a much better judge of what she would have said than I could possibly be.
But you’re right, too, that it would have simply opened a new discussion without settling the debate at hand.
At which point you ask him to supply specific quotes from Rand that support his assertions. If he can’t (and he won’t), then there is no point arguing further. He is not interested in understanding the issue, but instead he’s interested in staking out a position and holding it regardless of the facts.