[ivancho]

You haven't demonstrated most of these assertions. For example, if everyone gambled against everyone else every second, then that system has a pretty good chance of staying close to equilibrium for a long time, whereas your model indicates that the total utility would be depleted almost immediately. Whereas if everyone was fully insured for absolutely every risk in their life and immediately received a replacement of the exact same value on any loss, then the overall system would just steadily trend to all the money ending at the insurer, which doesn't seem like increased total utility

[bluecalm]

>>You haven't demonstrated most of these assertions. For example, if everyone gambled against everyone else every second, then that system has a pretty good chance of staying close to equilibrium for a long time

>>whereas your model indicates that the total utility would be depleted almost i

Can you describe specific assumptions about how that "everyone gambling against everyone else" would look like? I just don't see how my model could predict total utility being depleted very quickly while the model having good chance to stay close to equilibrium.

My model is very simple: apply utility function on wealth. When you model people flipping coins against each other you will see a lot of busted ones and a lot of rich ones pretty quickly and that will mean significant utility decrease.

[ivancho]

Ok, take 100 people, with $100 each, and have one round of $1 coin flips between each 2. A significant number of bets overall, 4950. Each person has wagered 1% of their net worth 99 times, something that we all agree sounds quite scary. And yet there will be no busted people, most will likely be between $80 and $120. Repeat this 10 times, a ridiculous amount of gambling - still most likely no bankruptcies, and the total utility, if we assume log, has barely dropped by 1%.

I simply do not believe that we are making such a subtle societal optimization by frowning upon gambling while encouraging all kinds of other risk taking, like investments and properties.

And the other scenario where insurance just acts as a drain on the overall system seems to indicate that it is not inherently positive for utility either

[gdilla]

well you can hedge your bets, a form of insurance. people do this with stock too.