Wednesday, July 18, 2012

Don't Insure Small Items

I just noticed this quote from David Cutler (the Harvard economist who is known for advising Obama on health care):
Each year, millions of people gladly pay an additional 10 to 50 percent of a product's original price to extend a warranty. These snap purchases help fuel a booming, $15 billion-a-year business and feed a lucrative profit stream for retailers that sell the warranties and companies that underwrite them. Many consumers do so because they say the plans provide them with peace of mind.
The decision to buy an extended warranty, however, defies the recommendations of economists, consumer advocates and product quality experts, who all warn that the plans rarely benefit consumers and are nearly always a waste of money.
"The things make no rational sense," Harvard economist David Cutler said. "The implied probability that [a product] will break has to be substantially greater than the risk that you can't afford to fix it or replace it. If you're buying a $400 item, for the overwhelming number of consumers that level of spending is not a risk you need to insure under any circumstances."
What is the theory by which 1) we should not buy insurance plans for fixing $400 electronic items, but 2) we should buy insurance plans that cover a huge number of sub-$400 healthcare expenses, from routine office visits to the cheapest prescriptions?

Sunday, July 15, 2012

Read for Two Weeks

Quote from Steven Johnson's Where Good Ideas Come From: The Natural History of Innovation:
The problem with assimilating new ideas at the fringes of your daily routine is that the potential combinations are limited by the reach of your memory. If it takes you two weeks to finish a book, by the time you get to the next book, you’ve forgotten much of what was so interesting or provocative about the original one. You can immerse yourself in a single author’s perspective, but then it’s harder to create serendipitous collisions between the ideas of multiple authors. One way around this limitation is to carve out dedicated periods where you read a large and varied collection of books and essays in a condensed amount of time. Bill Gates (and his successor at Microsoft, Ray Ozzie) are famous for taking annual reading vacations. During the year they deliberately cultivate a stack of reading material— much of it unrelated to their day-to-day focus at Microsoft— and then they take off for a week or two and do a deep dive into the words they’ve stockpiled. By compressing their intake into a matter of days, they give new ideas additional opportunities to network among themselves, for the simple reason that it’s easier to remember something that you read yesterday than it is to remember something you read six months ago.