Should you ever buy rental car insurance?
May. 19th, 2006 05:11 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
guslShould you ever buy rental car insurance?, via MR
My own take:
Most insurance is overpriced. This is because most people are irrationally risk-averse. One the one hand, you could say that such risk-aversion is rational because of the diminishing marginal utility of money. But on the other hand, that's only when we're talking about large quantities, or losses that would affect your long-term plans. Back on the first hand, a small loss can in practice become bigger if it affects your fluidity, taking away your "working space" money, since making a loan isn't always so quick. In both large and small fluidity-taking losses, there are replanning costs that we shouldn't ignore.
The other defense is "rational irrationality": losing a $90 cell phone hurts me more than it should, and since I know this, I will buy insurance.
On this particular question, though, there is another twist. If you don't have insurance, the dealership could try to rip you off by making you pay for tiny scratches that were there already (it happened to me once, back when I was naive and trusting). In this case, you can be sure that either they won't fix the scratch or that they're friends with the mechanic who will charge $300 to paint over the almost-invisible mark.
My own take:
Most insurance is overpriced. This is because most people are irrationally risk-averse. One the one hand, you could say that such risk-aversion is rational because of the diminishing marginal utility of money. But on the other hand, that's only when we're talking about large quantities, or losses that would affect your long-term plans. Back on the first hand, a small loss can in practice become bigger if it affects your fluidity, taking away your "working space" money, since making a loan isn't always so quick. In both large and small fluidity-taking losses, there are replanning costs that we shouldn't ignore.
The other defense is "rational irrationality": losing a $90 cell phone hurts me more than it should, and since I know this, I will buy insurance.
On this particular question, though, there is another twist. If you don't have insurance, the dealership could try to rip you off by making you pay for tiny scratches that were there already (it happened to me once, back when I was naive and trusting). In this case, you can be sure that either they won't fix the scratch or that they're friends with the mechanic who will charge $300 to paint over the almost-invisible mark.
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(no subject)
Date: 2006-05-19 05:50 pm (UTC)(no subject)
Date: 2006-05-19 06:08 pm (UTC)( I've elected to buy rental insurance a couple of times. ;)
The $4/mo cell phone insurance seems like a decent bet while you're locked into a plan and have an expensive phone, but you should ditch it when you satisfy the contract term.
(no subject)
Date: 2006-05-19 06:17 pm (UTC)again, insurance could be rational if it gives you fluidity, lets you sleep at night, involves a huge loss, etc.
(no subject)
Date: 2006-05-19 06:33 pm (UTC)So cellphone and rental insurance, no way. But health insurance I've paid for (in the months when I'm not working for a place that already pays it for me) since if I got into some accident and had to pay $200,000 in emergency hopital bills I'd be completely screwed. Auto insurance I pay the bare minimum legally required--I don't find it worth it, for instance, to insure my car since if I completely total it, I can afford to buy a new one. (Well, not easily--but I'll survive--and it doesn't seem worth paying a lot extra every month for years to insure against it.)
That said, there's an interesting counterpoint to your statement that "most people are irrationally risk-averse". While there's an element of truth to that, Nick Bostrom has pointed out an interesting flip side. He analyzes the risk of wiping out the human race, and says that people do not reason about it rationally because it's never happened before so we've never developed any evolutionary mechanism to cope with it. He says this is probably true for any extremely unliklely events--we just tend to ignore them instead of think about them.
I'd say the real problem is, people just don't know how to deal with probability in general. If you have unlikely events, people either ignore them and don't think about them at all... or if they think about them (specifically if a company advertises it and points out the risks to them) then they usually act as if it's much more likely to happen. People have trouble conceptualizing a very low probability, yet non-zero, event. Take the lottery, for instance--if people think about the possibility of winning and how much it is, they mentally compare that to a dollar and think "well of course it's worth it" but they don't take into account just how low the probability is. Or, they just say "it's never going to happen so I won't worry about it." What we need is more people who can visualize the in between.
(no subject)
Date: 2006-05-19 06:38 pm (UTC)He says this is probably true for any extremely unliklely events--we just tend to ignore them instead of think about them.
Also, adding to my point here about people having only two modes of thinking "somewhat likely, or completely impossible"... he Bostrom mentions that the few people who have written about risks of wiping out humanity tend to take an apocolyptic "the end is near" approach where they far overestimate the risks. So it's kind of an all-or-nothing approach instead of a careful analysis.