The Baudelaire orphans have been sent away to live with their Aunt Josephine. They’ve been told how formidable and fierce she is, but it turns out that Aunt Josephine is incredibly risk averse. She has disconnect the doorbell and the telephone because someone may be electrocuted if they have a faulty pacemaker, even if no one in the house has a faulty pacemakers. Risk averse individuals are willing to give up some benefits (in this case, doorbells and phone calls) in exchange for avoiding possible negative consequences (electrocution).
A traveling salesman sells Peter an insurance policy to protect his home against a volcano eruption. He convinces Peter “a volcano is coming this way” despite the fact that Peter lives in Rhode Island, far away from any active volcanoes. He convinces Peter to purchase the policy by using the gambler’s fallacy and convincing Peter that Rhode is “due for one.”
If this were actually true, the premiums associated with this policy would be extremely high and likely be the same as the cost that an actual volcano would inflict on the town. Insurance markets function on the interaction between uncertainty, risk aversion in consumers, and risk neutrality for firms. If some horrible event were guaranteed to occur imminently, there would be little incentive to sell insurance.
Thanks to Alex Marsella for the clip submission and most of the summary!
Boyle is going on a singles cruise and isn’t sure when to arrive at the airport. He approaches Gina with the idea of getting to the airport 5 hours early for a domestic flight (which is already too much!), but she tries to convince him he actually needs to be there 8 hours. Some people prefer to arrive at the airport extra early because they are scared they will miss their flight, but most people don’t need to arrive more than 2 hours. Later in the episode, we learn that Boyle missed his flight because of an assignment, but that he actually bought a backup flight just in case he missed it. This is perhaps an extreme version of risk aversion.
Two potential sailors come aboard the Pequod to inquire about becoming joining the crew. Peleg asks why any man would want to become a sailor when the conditions are so rough. He works through the requirements of being a sailor to make sure the men are willing to undergo through strenuous conditions. The reason whalers were so well-paid at the time was because the risk of death aboard the ship.
Here’s a good interview from The Daily Show with Jon Stewart and the captain of a fishing boat on the show Deadliest Catch.
There are two types of people who play the game of Monopoly. There are a batch of people who have their lives together and pay their bills online, but then there are people like Christian Finnegan who are more present-oriented. The present-oriented players tend to be a bit riskier in the hopes of earning large payoffs early in the game.
Original Video here: http://www.cc.com/video-clips/9mxydo/comedy-central-presents-monopoly