Panel 2 — Why We Buy Insurance

To help you get ready for the panel, here’s a list of questions to think about as you go through the book chapter and the Understanding Risk slides. There’s nothing to turn in — just look them over so you’re ready to join in. The questions I put to the panel come from this list.

From the reading

You can find these in the chapter and slides.

  1. What three ingredients describe a risky situation, and how do they combine into an expected value?
  2. How do you compute the expected value of a gamble, and what does it leave out about how a person actually chooses?
  3. What does it mean for someone to be risk-averse?
  4. Why might a risk-averse person pay a premium that is larger than their expected loss?
  5. Why does buying insurance make a risk-averse person better off, even though the insurer expects to pay out less than it collects?
  6. What features make a risk a good candidate for insurance?

Bigger questions

No single right answer here — these are the ones we’ll talk through together.

  1. Insurance is worth the most to people who are very risk-averse. Who values it least, and should that shape how we design or subsidize coverage?
  2. People often insure small, affordable losses (phone insurance, extended warranties) but underinsure against large ones. What might explain that?
  3. A small share of people account for most health spending in a given year. What does that concentration imply for how health insurance should work?
  4. Where would you draw the line between risks people should insure against and risks they should carry themselves?
  5. Does treating health insurance purely as financial protection miss anything about why people want coverage?

Your take

Think of a time you or your family decided whether to buy insurance of some kind — health, a car, a phone, a warranty. What made it feel worth it, or not? Anything from your own experience is welcome.