General
10 Jan 07
11 Jan 07
1 edit
By paying £1 for a lottery ticket you are buying a daydream.
Nothing wrong with that.
And there are other prizes apart from the jackpot.
I prefer the horses, of course, but that is not a daydream - you can make educated calculations with racing. [horses have previous form to go by]
11 Jan 07
2 edits
Originally posted by LundosYes, but so is buying insurance. It's an inverse lottery - not buying insurance means you have a small chance of losing a large amount. But you have an expected loss if you buy insurance, looking at it purely mathematically. That's how insurance companies make a profit.
Probability has everything to do with it. Lottories only exists because some people think like you. You play for 1$. Then you do it 52 weeks a year for 20 years. You still haven't won the big prize. What then? You would be foolish to play.
EDIT: Of course you might argue that the utility of a lottery playing person i higher, if they play than if they don't, but from a purely economic and mathmatical view, it's a losing game.
Do you have any insurance? If you do, you've already accepted the concept that you don't really have a linear relationship with money.
11 Jan 07
1 edit
Originally posted by mtthwIt's funny but yesterday I was thinking about my dog's insurance, or rather stoping it because it must be bad value as the insurer's assess the risk then add their overheads and profit margin on top. I then moved onto my house insurance but I'm not sure about that one as it's a much bigger problem although the principle remains the same. So I have more or less decided to cancel the dog's insurance as it costs about the same as the house insurance, but I can't imagine anything going wrong with the dog that would cost £150,000 to put right
Yes, but so is buying insurance. It's an inverse lottery - not buying insurance means you have a small chance of losing a large amount. But you have an expected loss if you buy insurance, looking at it purely mathematically. That's how insurance companies make a profit.
Do you have any insurance? If you do, you've already accepted the concept that you don't really have a linear relationship with money.
11 Jan 07
Originally posted by stevetoddMaybe not, but....
It's funny but yesterday I was thinking about my dog's insurance, or rather stoping it because it must be bad value as the insurer's assess the risk then add their overheads and profit margin on top. I then moved onto my house insurance but I'm not sure about that one as it's a much bigger problem although the principle remains the same. So I have more or ...[text shortened]... t I can't imagine anything going wrong with the dog that would cost £150,000 to put right
As there is no NHS for pets it makes sense to have Pet Insurance, it is a very good way to budget for those unexpected bills. It also ensures peace of mind, and ensures the best of treatment is available without the financial worry.
Just see how some of these pet owners have benefited from Pet Insurance
Shiya, a 2 year old male Papillon fom Middlesex received nearly £6,000 worth of veterinary treatment for his fractured front legs.
Luke, a 1 year old Labrador Cross from North Humberside had a hip replacement costing over £5,000.
Harry, a 2 year old Lurcher cross from Hertfordshire received treatment for a fractured leg with costs so far at nearly £4,000
Tuck, a 2 year old Labrador Cross from Devon received treatment for a throat injury from a stick this cost the owner over £2,000.
Monster, a female domestic cat from South Humberside received treatment for a road traffic accident in the first month of having insurance, the cost of treatment came to over £1,000.
Flo, 3 year old female Border Collie from Liverpool needed treatment after running into a lamp post, costs of treatment came to £1151
Ceefa, a 4 year old domestic cat from London received extensive surgery on her leg after jumping into a glass coffee table, the treatment cost over £700
Jake, a 2 year old Stafordshire Bull terrier from Staffordshire had to have an operation after swallowing a stone, the surgery cost nearly £700
For the sake of a few £'s peace and mind is achieved.
After all you insure your life, car, house, contents etc etc - just in case.
Like all insurances they are only worth the money when something goes wrong.
11 Jan 07
Originally posted by LundosAgain, you are talking about the probabilities of winning, whereas I am talking about the actual exchange.
Probability has everything to do with it. Lottories only exists because some people think like you. You play for 1$. Then you do it 52 weeks a year for 20 years. You still haven't won the big prize. What then? You would be foolish to play.
EDIT: Of course you might argue that the utility of a lottery playing person i higher, if they play than if they don't, but from a purely economic and mathmatical view, it's a losing game.
The only way anyone can win is if they purchase (at minimum) a one dollar ticket. You wish to justify not playing because of probability, but there is zero probability to win without a purchase. The person who doesn't play is only ahead by $52 at the end of the year, if the person who does play doesn't win.
Odds are definitely in the favor of not winning, but they are absolute for the person who doesn't play. But let's get back to the actual exchange. Given the relative small amount of effort which goes into generating one dollar, the loss of 52 of them for the year is about as close to inconsequential as you can get.
The exchange of one dollar for even M$1, let alone upwards of M$100 or more makes the proposition worthwhile. Whether articulated or not, most people who play the lottery don't play because of the odds: they play for the exchange.
The poster who suggested insurance as a concept with which to compare the proposition is pretty close to the target. We buy insurance because we think something bad could happen, and the cost is typically substantial. And truly, there is no guarantee that in the case of 'something bad' happening the insurance company will be solvent enough to pay. Or if nothing bad happens, would we -in retrospect- say we were foolish to pay the premiums? Of course not!
Perhaps you could look at your one dollar premium as a type of insurance for 'something good' --- not real likely to happen, but it's better to be safe than sorry.
11 Jan 07
Originally posted by FreakyKBHInsurance is a terrible analogy for the lottery. A lottery, like all organized gambling, is entertainment. Insurance may be entertaining to some, but I'm guessing the legal requirements and the inability of the average American Joe to pay for expensive medical care without it are the real reasons people buy insurance.
Again, you are talking about the probabilities of winning, whereas I am talking about the actual exchange.
The only way anyone can win is if they purchase (at minimum) a one dollar ticket. You wish to justify not playing because of probability, but there is zero probability to win without a purchase. The person who doesn't play is only a ...[text shortened]... 'something good' --- not real likely to happen, but it's better to be safe than sorry.
11 Jan 07
Originally posted by PBE6Since the history of insurance is to hedge one's bets against loss, hedging one's bets for gain is not that far off the mark. Insurance is used in many places where gambling occurs. Just because its various forms have become more mainstream doesn't make insurance any less a type of gambling.
Insurance is a terrible analogy for the lottery. A lottery, like all organized gambling, is entertainment. Insurance may be entertaining to some, but I'm guessing the legal requirements and the inability of the average American Joe to pay for expensive medical care without it are the real reasons people buy insurance.
11 Jan 07
Originally posted by PBE6Yes, but that doesn't make it a bad analogy. In both cases you're comparing a large probability of a small/win loss with the small probability of huge win/loss. In both cases the big win/loss could be life-changing (in a good or bad way), which is why people's perception doesn't tally with the maths.
Insurance is a terrible analogy for the lottery. A lottery, like all organized gambling, is entertainment. Insurance may be entertaining to some, but I'm guessing the legal requirements and the inability of the average American Joe to pay for expensive medical care without it are the real reasons people buy insurance.
Some insurance is a legal requirement, but I'd insure my house even if it wasn't.
11 Jan 07
Originally posted by stevetoddI suspect your dog is a lot more likely to go wrong than a pet, though.
It's funny but yesterday I was thinking about my dog's insurance, or rather stoping it because it must be bad value as the insurer's assess the risk then add their overheads and profit margin on top. I then moved onto my house insurance but I'm not sure about that one as it's a much bigger problem although the principle remains the same. So I have more or ...[text shortened]... t I can't imagine anything going wrong with the dog that would cost £150,000 to put right
11 Jan 07
Originally posted by FreakyKBHI have to concede that there are definite similarities between purchasing insurance and gambling, in that you wager on the outcome of an event (such as the outcome of a hand of blackjack, or the outcome of driving your brand new Porsche down the highway). However, the same similarities exist if you don't purchase insurance. In fact, it's the same situation if the concept of insurance never existed. The bet size has just been reduced to $0.
Since the history of insurance is to hedge one's bets against loss, hedging one's bets for gain is not that far off the mark. Insurance is used in many places where gambling occurs. Just because its various forms have become more mainstream doesn't make insurance any less a type of gambling.
That's why I don't think it's a good analogy. It doesn't address the essence of gambling, which is not the win itself...it's the THRILL of the win, and the perverse mixture of tension and hope of the loss. Insurance may share the mathematics, but it doesn't share the emotion.
11 Jan 07
Originally posted by adramforallYeah but say if Mills (my dog) was ill and needed £7,000 worth of treatment of course he would get it, and I would be out of pocket by £7,000 (less the insurance premuims). But if you did compare it to a bet that means I would be backing something at shorter odds to accommodate the insurer's overheads and profit. I think its better value to back it at the correct odds, i.e. either pay nothing or the full amount if he goes ill. However as Mills is a lab I will look into the policy's exclusions regarding hip replacement as he was seriousll overweight for the first 4.5 years of his life (before I got him).
Maybe not, but....
As there is no NHS for pets it makes sense to have Pet Insurance, it is a very good way to budget for those unexpected bills. It also ensures peace of mind, and ensures the best of treatment is available without the financial worry.
Just see how some of these pet owners have benefited from Pet Insurance
Shiya, a 2 year old m ...[text shortened]... - just in case.
Like all insurances they are only worth the money when something goes wrong.
11 Jan 07
Originally posted by PBE6Agreed on insurance not carrying the emotional zest of gambling. In fact, insurance is the elimination of that emotional quagmire altogether, minimizing the loss to premiums paid and whatever deductible is agreed upon.
I have to concede that there are definite similarities between purchasing insurance and gambling, in that you wager on the outcome of an event (such as the outcome of a hand of blackjack, or the outcome of driving your brand new Porsche down the highway). However, the same similarities exist if you don't purchase insurance. In fact, it's the same situation if ...[text shortened]... ope of the loss. Insurance may share the mathematics, but it doesn't share the emotion.
So let's look at lottery as an investment. With the smallest load possible among all available investments, can any of those other investment opportunities equal the potential payoff of the lottery? Or, let's say we took one dollar weekly for 20 years, as suggested. At 12% interest, a person who invested that $1040 would end up with over $3700, for a +360% gain. Not bad for going without one soda a week.
But what of the cat who goes without that soda for one week and wins the lottery? What gain does he realize? A "modest" lottery of M$12, after taxes and penalty for cash payout gives the winning ticket holder approximately M$3.7. Even if a person didn't win until the last week of their 20th year of weekly playing, their gain is over 357,000%.
So it really comes down to loss/gain. Playing the lottery over 20 years, the least amount lost is $1040. For the savvy investor, the loss is around $3700. Playing the lottery over 20 years on the gain side, however, is another story altogether. While the savvy investor can stand to gain $2700, the brilliant tactician who plays the lottery stands to gain M$3.7 on a smallish lottery. That trade-off, that exchange is a no-brainer.
13 Jan 07
Originally posted by mtthwThere's a reason an insurance arguement follow a lottery explaination in chapters about 'uncertainty' in books about microeconomics. And there's a reason the 'expected utility function' follows that.
Yes, but so is buying insurance. It's an inverse lottery - not buying insurance means you have a small chance of losing a large amount. But you have an expected loss if you buy insurance, looking at it purely mathematically. That's how insurance companies make a profit.
Do you have any insurance? If you do, you've already accepted the concept that you don't really have a linear relationship with money.
You might argue insurance is like an inverse lottery, but here you hedge against the unexpected where you know your exact odds in a lottery. So it's not the same. Only the uncertainty element is.
It comes down to preferences about risk. Most people are risk-averse. They don't know the probabilty og burglary or a hurricane. But they understand losing a lt if it happens. That's why they buy insurance. Insurance companies have a better understanding of these things, that's why they make money.
Do I have insurance? It's still about utility, preferences, and probability. And no I don't have any insurance.
It's a long discussion and you have to have some basic understanding of economy to comprehend the subject. Now I'm not going to post 12 chapters of microeconomy here, but I recommend you read HAl R. Varian's 'Intermediate Microeconomics'. And when you understand that read Mas Colell, Whinston, and Green's 'Microeconomics'.