Insurance on that blackjack?

Recently, I got an auto insurance plan for myself for the first time. While I was getting a quote, I was offered comprehensive insurance which would cover damage to my car if I’m at fault in an accident. I declined. My parents, who have comprehensive insurance on their plan, were surprised. When car insurance came up in a discussion with some coworkers, they were also surprised to hear I didn’t have comprehensive insurance. They probably figured I could afford the monthly payments, so why wouldn’t I want to be covered in case of an accident?

It’s not that I’m counting on not getting into any accidents. I consider myself an above average driver (so does everyone) but I won’t delude myself into thinking I’m immune from causing an accident. It’s not that I’m afraid my insurance company would deny my claims or make it exceedingly difficult to get compensated. It’s just that I believe insurance is a losing proposition and, in the case of damage to my car, I’m willing and able to endure the variance.

What do I mean by a losing proposition? Well, insurance companies don’t stay in business by charging their customers less in premiums and deductibles than the total amount of claims those customers make. In fact, they charge quite a bit more; enough to cover customer support, sales, and fraud while still ending up with a profit. Insurance customers don’t reduce their expenses by getting insurance. Instead, they reduce the variance in their expenses.

Often, insurance is a good or even necessary thing. Homeowners’ and health insurance, for example, can protect people from disasters that could financially ruin all but the wealthiest families and individuals. Going broke is very bad for one’s quality of life, and therefore it’s something people want to avoid. Fortunately, the chance of one becoming hospitalized or losing their home to a fire is low, so insuring against such things is affordable.

However, all too often I see sale pitches for insurance to cover much less expensive or traumatic losses, such as:

  • Extended warranties
  • Jewelry insurance
  • Pet insurance
  • Child life insurance
  • Payment protection on credit cards

To be clear, insurance companies don’t stay in business by selling plans that save their customers money. Even though we limit our expenses when we make a claim, most of us will pay the insurance companies more than they pay us back in the long run. What insurance companies are really selling is a reduction in the variance of our finances. Insurance customers accept a guaranteed small loss to eliminate the chance of a disastrous huge loss.

Human nature is such that people like to avoid experiencing loss. We are a loss averse and risk averse species. We hate feeling like we’ve lost or wasted something. It’s why you are unlikely to leave a theater if the movie stinks when you’ve already driven to the theater and paid for a ticket, but fine with changing the channel after you’ve started watching that same movie for free on cable TV. It’s why you might drive across town to return $15 worth of defective merchandise to a store, but you’d never accept if a stranger offered to pay you $15 to spend your afternoon running an errand on the other side of town. It’s why you might be hesitant to make a bet with a friend, but your first desire after losing that bet will be to go “double or nothing” on another.

"We're scaring you into buying more insurance coverage than you need. Our marketing department thinks this will make us more money than ads with a talking duck or gecko."

With insurance, we don’t mentally experience loss when we pay monthly premiums; it’s just another fixed expense. In fact, if you’re using automatic payments you might even forget that you pay premiums. How psychologically convenient!

Imagine you hit a deer while driving one day and cause significant damage to the front of your car. Without comprehensive insurance, you would know that you’re going to get hit with a four digit repair bill. And you might think “if I’d left home a minute earlier I wouldn’t have hit that stupid deer!” And you might wonder why the universe decided to punish you. And it won’t be a very pleasant experience or an easy loss to come to terms with.

With comprehensive insurance, you could take solace in the fact that you’ll only be out a few hundred dollars and your insurance company will take care of whatever the bill is. That sense of loss that is so unpleasant to humans will be limited. “Thank god for insurance!” you’ll say to yourself.

But of course, you’d likely wind up with more money in your pocket in the long run without that insurance. If you’re able to put enough liquid assets aside to handle a few thousand dollars of unexpected expenses, and can come to terms with feeling loss every now and then, why not be your own insurance?

It seems irrational from a Homo Economicus point of view to insure losses that could be paid for by oneself. Yet nonessential insurance is a big business, so it seems people are willing to pay quite a bit to steady their finances and avoid loss and risk. That is, it seems that way until you think about how popular casinos and lotteries are. What kind of a service do casinos and lotteries provide to their customers?

In most forms of gambling, the casino or “house” offers a player losing propositions that occasionally result in a big win. Powerball jackpots, 777 on a slot machine, and a royal flush on a video poker machine are some common examples of big wins that are dangled like a carrot in front of players. Players accept a large chance of losing money in exchange for a small chance of winning and a microscopic chance of winning big. What it boils down to is that casinos are selling an increase in the variance of their customers’ finances. That is the opposite of what insurance companies are selling. So why are both popular? I doubt there is a rational answer.

People can have many misconceptions or superstitions when it comes to gambling, but few don’t believe the saying that “the house always wins.” Almost everyone who frequents casinos or scratch off booths has lost money to them, and most trips to those places result in a loss. So why do people tolerate risk of financial loss and the mental anguish of experiencing loss when they’re aware that these risks are not expected to help their bottom line? And how many people who like to gamble on slots and lotteries also have unnecessary insurance plans?

"19" "Hit me" "20" "Hit me" "21" "Hit me" "Bust" "D'oh!"

"Of course I take insurance on my blackjack! I have kids I need to put through college and I can't take any chances!"

Then there’s the ultimate mystery of all. A gambler is sitting at a blackjack table. He is losing money in the long run in hopes of positive variance so he can experience a win in the short run. He gets dealt blackjack, while the dealer shows an Ace. He is offered “insurance” on his blackjack, which will pay him a guaranteed 1:1 win on his bet. Declining insurance will result in a 1.5:1 win when the dealer doesn’t have a ten in the hole for blackjack and a push when the dealer does. It is very rarely a winning proposition to accept insurance in blackjack, and this is one of the most widely understood rules of blackjack strategy. Yet many people still accept insurance because they want to ensure a “win” on that particular deal. They are paying to reduce their variance in a game where they pay to increase their variance in a place where variance is the only chance most players have of winning anything. They might as well put $20 on the table, get dealt some cards, and then get $19 back – now that’s insurance.

Nonessential insurance can give you steadiness and peace of mind but is frequently costly and unnecessary. Gambling can give you a thrill and chance to win big but is almost always costly and unnecessary. Paying for both at the same time is silly. Personally, I’ll take my gambling in the form of not insuring things that I can afford myself. And I’ll keep my eye out for deer when I drive.


Tribute to my Dawg

There’s a phrase that many Americans frequently* use: “You’re my dawg.” I don’t know exactly where this saying came from, but to me it means one or all of the following:

  • You’re a close friend.
  • I can count on you.
  • You get me.
  • I enjoy spending time with you.

That is an excellent set of qualities to have in a companion. I can’t imagine the primary demographic that uses “dawg,” 14-30 year old males, saying the lines above verbatim to convey friendship very often. Calling each other dawg instead is much more convenient.

Why the word dawg? I never really gave it much thought until recently. But, since I got my first dog a year and a half ago, the saying now makes perfect sense to me.

My dog is a 10 pound, nearly two years old Rat Terrier. She was a stray from the streets of north Philadelphia. My wife spayed her as part of her education towards becoming a veterinarian, and we adopted her right after (one of the best moves of our lives). Her name is Scoop, which comes from the term for winning the entire pot in a split-pot poker game. My brother and I play a lot of Omaha Hi/Lo, so “scoop” was equivalent to “jackpot” or “bingo” in our lexicons and it had nothing but positive connotations in our minds.

Sup dawg?

Scoop is the ultimate companion. She is down to do whatever I want to do, whenever I want to do it. Fight over a piece of knotted rope? Hell yes, she’s ready to throw down right then and there. Lazy day at home? She’ll sleep in bed with me under the covers until 1 PM. Long, late-night walk in freezing temperatures? She’ll enthusiastically follow me anywhere.

Her ability to make people feel wanted is unparalleled. When I get home, I usually have her greet me outside because she gets so excited to see me that she is literally in danger of pissing herself. My wife and I agree: I would have to be stranded on an island for years and pronounced dead before a human could be as happy to see me as Scoop is when I come back from a trip to the grocery store.

Her goal in life is to please. Scoop tries so hard to be in tune with me. She’s happy when I’m happy and excited when I’m excited. If she thinks I’m upset or disappointed, her ears go down and she shifts into melancholy puppy mode even if she’s done nothing bad. And on the rare occasions I’m actually disappointed with her, she doesn’t ever blow me off or get angry at me. She seems so full of guilt and ready to accept blame, how can I possibly stay upset?

And I’ve thought to myself a couple times when I’ve been on walks alone with her at night… If we were to ever be attacked, whether by a human or a bear that’s wandered into the suburbs, Scoop would stay by my side. She wouldn’t use her mind-boggling speed and agility to run away. Instead, I’m confident that her lips would curl up and the hair on her back would stand to make her look as intimidating as possible, and, if a brawl were to break out, she’d use all the power in her tiny body to defend me. She and I are members of the same pack, and that means we’ve got each others’ backs.

All this makes me understand why calling someone your dog/dawg is akin to the ultimate declaration of friendship. If a person treats you the way you’d expect to be treated by your dog, then that person is a fantastic friend indeed.

Scoop, you can’t read this post or even understand English except for a handful of words, but you’re my dawg.

Scoop, when she's not fighting bears and muggers

Scoop, when she’s not fighting bears and muggers

*In my experience, there’s been a trend for some time that has “bro” replacing “dawg” in most instances. “Sup bro?” is the new “sup dawg?” and so on. Brothers do make for pretty good companions after all, but for the purposes of this post I’ll pretend it’s 1999 and dawg is still the slang word of choice.


Hello. Welcome to my first ever attempt at a blog.

Back in college, I used to write every other week for the Life section of the Cavalier Daily. I’d write about different topics for each article. My objective was simply to make my articles entertaining and amusing for the average college student. I enjoyed that a lot, and that’s sort of what I’m going for here except with a slightly nerdier and more personally meaningful focus.

My posts will be about anything that I find interesting or thought-provoking and will likely include topics such as poker, politics, psychology, and sports (specifically basketball, specifically college basketball, specifically Kentucky basketball). I don’t want this to be a diary or a profile of myself, but rather an outlet to write down my thoughts and maybe entertain or influence some people along the way.

Wish me luck and enjoy.