Planet Money Summer School
Intro Econ 8: Risk & Disaster
Aug 26, 2020
In this podcast, the hosts discuss the concept of risk and disaster. They explore risk-taking, professional gamblers, and their approach to assessing probabilities. They also delve into the role of insurance in mitigating financial risk, the evolution of insurance policies, and the exclusions and limitations of insurance. Additionally, they cover the reasons why people buy insurance and how it helps to mitigate the negative effects of risk. The chapter also explores the concept of insurance as a risk management tool and discusses moral hazard and adverse selection.
27:32
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Quick takeaways
- Understanding the probability and potential outcomes of risks is essential in finance and gambling.
- Insurance protects against unexpected losses by redistributing resources and managing risks.
Deep dives
Understanding Risk and Avoiding Unnecessary Risks
Risk is a spectrum and understanding the probabilities and associated outcomes is crucial. Professional gamblers and people in finance are always cautious about unnecessary risks. The perception of risk varies among individuals based on their probability assessments and the value they place on the potential outcomes. While avoiding risk may seem prudent, it also comes with opportunity costs. For example, not swimming in the ocean due to fear of sharks means missing out on the joy of being in the cool water on a summer day.
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