Why people trade risk

Gambling is a feature of capitalism—not a bug

In a modern capitalist economy, almost everything is for sale, including risks. Markets can transfer known risks to people or institutions who can handle the risk more effectively. The cost of rebuilding my house if it is destroyed by fire is beyond my means. For an insurance company with many properties on its books and many shareholders, by contrast, the loss is easily manageable. Trade in risk may be motivated by such insurance—the prudent management of risk—but it may also be about wagering: that is, individuals backing their own, distinctive, perception of the nature and likelihood of an event. …..[READ]

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