The wisdom of betting on a losing gamble

[DaveC426913]

TL;DR

I guess this is just called "insurance".

Let's pretend my organization has just announced a round of massive downsizing (don't ask me why I'm thinking this today).

Let's pretend we have no idea who or how many might be getting their walking papers.
Let's further pretend we all have a macabre sense of amusement, and decide to set up an office pool.

I would do well to bet against myself - even if (in fact, especially if) I am likely to lose the bet.

The logic:
I bet money that I will lose my job:
- if I am wrong, I can afford to lose some cash, since I still have my job
- if I am right, I am out of a job, but with a tidy bit of cash to help just when I need it.

I've never come across a scenario here it pays to bet against yourself. It seems so counter-productive. But I guess technically, it's just a form of one-shot unemployment insurance.

Is there a name for this kind of strategy? (I don't think it falls under hedging one's bets, since the idea of hedging one's bets means that one bets on both the winning and losing condition.)

 

[.Scott]

I think the term may be "insurance".

It's certainly a very, very common strategy. Normally odds are computed based on the common accepted value of the wager and return. But personally for the gambler, a $5 weekly wager will have no impact on his/her style of living - it may even provide a social return in the form of a topic of conversation. Where as winning $100M is viewed as life-changing. So the math is not $100M/$5 (20,000,000) but rather something/nothing.
Buying insurance follows this strategy. On average you won't get your premiums back - but if you do, they will be when the money is more valuable to you.

 

[Dale]

But I guess technically, it's just a form of one-shot unemployment insurance.

Is there a name for this kind of strategy?

As you say, it is called insurance.

Health insurance is a bet that you will get sick. Life insurance is a bet that you will die. Fire insurance is a bet that your house will burn down. Etc.

(I am slow @.Scott for the win)

 

[DaveC426913]

@.Scott Seen your name a million times but, for some reason, this time my brain seized on it and wondered if perhaps your middle name was "cor" (or "ctor"). As in:

No idea why.

 

[haruspex]

It is called utility theory. Generally, the value one has for money is monotonically increasing but concave. The more you have, the less value each additional $ has.
It makes insurance logical, but most other forms utterly illogical.
An exception is where there is extra value in beating some assets threshold, like being able to afford a life saving treatment.

 

[.Scott]

@.Scott Seen your name a million times but, for some reason, this time my brain seized on it and wondered if perhaps your middle name was "cor" (or "ctor").

Scott's my first name. It's not customary to post a full name in PF, so I won't.
But, as a software engineer, ctor would be a fine middle name. It is a commonly used abbreviation for "constructor" - the kind used in C++ (and, more generally, object-oriented) programming.

I have never been tempted to see the Rocky Horror Picture show. And that picture hasn't changed my mind.