§ 10. We have so far regarded Insurance and Gambling as being each the product of a natural impulse, and as having each, if we look merely to experience, a great mass of human judgment in its favour. The popular moral judgment, however, which applauds the one and condemns the other rests in great part upon an assumption, which has doubtless much truth in it, but which is often interpreted with an absoluteness which leads to error in each direction;—the duty of insurance being
too peremptorily urged upon every one, and the practice of gambling too universally regarded as involving a sacrifice of real self-interest, as being in fact little better than a persistent blunder. The assumption in question seems to be extracted from the acknowledged advantages of insurance, and then invoked to condemn the practice of gambling. But in so doing the fact does not seem to be sufficiently recognized that the latter practice, if we merely look to the extent and antiquity of the tacit vote of mankind in its favour, might surely claim to carry the day.
It is of course obvious that in all cases with which we are concerned, the aggregate wealth is unaltered; money being merely transferred from one person to another. The loss of one is precisely equivalent to the gain of another. At least this is the approximation to the truth with which we find it convenient to start.[6] Now if the happiness which is yielded by wealth were always in direct proportion to its amount, it is not easy to see why insurance should be advocated or gambling condemned. In the case of the latter this is obvious enough. I have lost £50, say, but others (one or more as the case may be) have gained it, and the increase of their happiness would exactly balance the diminution of mine. In the case of Insurance there is a slight complication, arising from the fact that the falling in of the policy does not happen at random (otherwise, as already pointed
out, it would be simply a lottery), but is made contingent upon some kind of loss, which it is intended as far as possible to balance. I insure myself on a railway journey, break my leg in an accident, and, having paid threepence for my ticket, receive say £200 compensation from the insurance company. The same remarks, however, apply here; the happiness I acquire by this £200 would only just balance the aggregate loss of the 16,000 who have paid their threepences and received no return for them, were happiness always directly proportional to wealth.
§ 11. The practice of Insurance does not, I think, give rise to many questions of theoretic interest, and need not therefore detain us longer. The fact is that it has hardly yet been applied sufficiently long and widely, or to matters which admit of sufficiently accurate statistical treatment, except in one department. This, of course, is Life Insurance; but the subject is one which requires constant attention to details of statistics, and is (rightly) mainly carried out in strict accordance with routine. As an illustration of this we need merely refer to the works of De Morgan,—a professional actuary as well as a writer on the theory of Probability,—who has found but little opportunity to aid his speculative treatment of Probability by examples drawn from this class of considerations.
With Gambling it is otherwise. Not only have a variety of interesting single problems been discussed (of which the Petersburg problem is the best known) but several speculative questions of considerable importance have been raised. One of these concerns the disadvantages of the practice of gambling. There have been a number of writers who, not content with dwelling upon the obvious moral and indirect mischief which results, in the shape of over-excitement, consequent greed, withdrawal from the steady business
habits which alone insure prosperity in the long run, diversion of wealth into dishonest hands, &c., have endeavoured to demonstrate the necessary loss caused by the practice.