Insurance exists for a specific reason. People buy insurance contracts because they want to hedge some kind of risk. Insurance companies can diversify this risk across many uncorrelated bets. With prediction markets neither of these is necessarily true, so you are not guaranteed to have positive-sum trades. Even when there are theoretically trades to be made, pricing contracts on random propositions with poor reference classes is much more difficult than forecasting the probability of death, earthquakes, a golf hole-in-one, etc., so it may not be worthwhile.
If people enjoy gambling on random propositions like the fate of the king’s mistresses, that’s an entirely different business model.
And specifically, the risk they hedge against is usually some major risk to themselves. So insurance is similar to a social safety net in some sense. If there’s a (totally made up) 1⁄100 lifetime chance of each person being severely injured in a car crash, and such an injury would both cost me a lot of money and a lot of earning power, then of course I’d want to insure against it. Even though the insurance company takes a cut, I’d much rather lose money on this insurance contract than collect on it. And we hope that market competition prevents the insurers from taking too big of a cut, because the insurers compete on rates. Prediction markets just don’t serve this function at all.
People in this thread are focusing too much, I think, on bespoke kinds of insurance (which is most kinds of insurance), and not enough on normal everyday insurance (which is most actual insurance contracts).
Insurance exists for a specific reason. People buy insurance contracts because they want to hedge some kind of risk. Insurance companies can diversify this risk across many uncorrelated bets. With prediction markets neither of these is necessarily true, so you are not guaranteed to have positive-sum trades. Even when there are theoretically trades to be made, pricing contracts on random propositions with poor reference classes is much more difficult than forecasting the probability of death, earthquakes, a golf hole-in-one, etc., so it may not be worthwhile.
If people enjoy gambling on random propositions like the fate of the king’s mistresses, that’s an entirely different business model.
And specifically, the risk they hedge against is usually some major risk to themselves. So insurance is similar to a social safety net in some sense. If there’s a (totally made up) 1⁄100 lifetime chance of each person being severely injured in a car crash, and such an injury would both cost me a lot of money and a lot of earning power, then of course I’d want to insure against it. Even though the insurance company takes a cut, I’d much rather lose money on this insurance contract than collect on it. And we hope that market competition prevents the insurers from taking too big of a cut, because the insurers compete on rates. Prediction markets just don’t serve this function at all.
People in this thread are focusing too much, I think, on bespoke kinds of insurance (which is most kinds of insurance), and not enough on normal everyday insurance (which is most actual insurance contracts).