The point isn’t to make irrational bets, but rather to make rational ones. Ones where the odds you’re getting are reasonable, and you’re ensuring a certain wealth/happiness minimum for yourself.
Just because you consider it GOOD if Obama wins doesn’t mean you can rationally conclude “Obama will win”. In fact any way that you can conclude an Obama victory from your liking Obama is obviously irrational.
However concluding that Obama losing will cause you to have financial difficulties means that insuring yourself against such a loss is very useful.
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!
Insurers do take their cut, and it may be enough that insurance is not worth it. However, that’s not certain; while customers will be poorer on average, they may also be better off on average, since money is worth less the more you have (diminishing margin of returns, concave utility function, etc).
Minimizing risk can be a good idea whenever you have a threshold of risk past which you’d have a very hard time returning (i.e. severe illness or poverty).
Of course there are circumstances when insurance makes sense. What the post says, though is:
For all these reasons, gentle readers, I urge you to wire some money into an offshore account, log into intrade, find some outcome that would make you miserable, and bet heavily on it.
There is no mention of considering whether you might want to take more or fewer risks. This idea that risks are bad and that people should insure against them is not a biologically realistic one. The council given in this post needs to be taken with multiple pinches of salt.
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.
In fact any way that you can conclude an Obama victory from your liking Obama is obviously irrational.
Unless of course you are the CEO of a company with a large contract to manufacture computerized voting machines. In that circumstance, you could also conclude a not-Obama victory if you don’t like Obama.
The point isn’t to make irrational bets, but rather to make rational ones. Ones where the odds you’re getting are reasonable, and you’re ensuring a certain wealth/happiness minimum for yourself.
Just because you consider it GOOD if Obama wins doesn’t mean you can rationally conclude “Obama will win”. In fact any way that you can conclude an Obama victory from your liking Obama is obviously irrational.
However concluding that Obama losing will cause you to have financial difficulties means that insuring yourself against such a loss is very useful.
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!
Insurers do take their cut, and it may be enough that insurance is not worth it. However, that’s not certain; while customers will be poorer on average, they may also be better off on average, since money is worth less the more you have (diminishing margin of returns, concave utility function, etc).
Minimizing risk can be a good idea whenever you have a threshold of risk past which you’d have a very hard time returning (i.e. severe illness or poverty).
Of course there are circumstances when insurance makes sense. What the post says, though is:
There is no mention of considering whether you might want to take more or fewer risks. This idea that risks are bad and that people should insure against them is not a biologically realistic one. The council given in this post needs to be taken with multiple pinches of salt.
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.
Unless of course you are the CEO of a company with a large contract to manufacture computerized voting machines. In that circumstance, you could also conclude a not-Obama victory if you don’t like Obama.