So you say that if Kelly says to buy insurance for $300 if the insurance costs $100 I should not buy the police but set aside $300 in case of emergency?
Insurance whose payout is only three times the policy cost should rather be classified as a scam. More generally, I think the strategy would be thus: Kelly tells you to take some amount of money and spend it on insurance. If that amount is enough to cover the payout of the insurance policy, then you should not pay the premium; instead you should put the money in savings and enjoy the interest payments. Only if the amount Kelly assigns to insurance is too small to cover the payout should you consider paying the premium.
Ok, in that case it’s rather the Xbox that is the scam, but I stand by the use of the word. If that sort of insurance is a good deal, you’re being screwed over somewhere. :)
in that case it’s rather the Xbox that is the scam
I wouldn’t say that; as always, the question is whether the good is +EV and the best marginal use of your money. If the console costs $3 and insurance costs $1 and there’s a >33% chance the console will break and you’ll use the insurance, given how much fun you can have with an Xbox is that really a scam? I wouldn’t say so.
If that sort of insurance is a good deal, you’re being screwed over somewhere.
In practice the insurance that you can buy is too limited and the odds too bad to actually make it a good deal; I did some basic analysis of the issue at http://www.gwern.net/Console%20Insurance and you’re better off self-insuring, at least with post-second-generation Xbox 360s (the numbers look really bad for the first-generation but hard sources are hard to come by).
So you say that if Kelly says to buy insurance for $300 if the insurance costs $100 I should not buy the police but set aside $300 in case of emergency?
Insurance whose payout is only three times the policy cost should rather be classified as a scam. More generally, I think the strategy would be thus: Kelly tells you to take some amount of money and spend it on insurance. If that amount is enough to cover the payout of the insurance policy, then you should not pay the premium; instead you should put the money in savings and enjoy the interest payments. Only if the amount Kelly assigns to insurance is too small to cover the payout should you consider paying the premium.
Depends on the cost of the risk, no? For a first generation XBox 360, paying half the price for a new replacement is not obviously a bad deal...
Ok, in that case it’s rather the Xbox that is the scam, but I stand by the use of the word. If that sort of insurance is a good deal, you’re being screwed over somewhere. :)
I wouldn’t say that; as always, the question is whether the good is +EV and the best marginal use of your money. If the console costs $3 and insurance costs $1 and there’s a >33% chance the console will break and you’ll use the insurance, given how much fun you can have with an Xbox is that really a scam? I wouldn’t say so.
In practice the insurance that you can buy is too limited and the odds too bad to actually make it a good deal; I did some basic analysis of the issue at http://www.gwern.net/Console%20Insurance and you’re better off self-insuring, at least with post-second-generation Xbox 360s (the numbers look really bad for the first-generation but hard sources are hard to come by).