Mogul Moral Hazard

cold-cool-man-47356 (1)Moral Hazard describes a situation in which one party becomes more inclined to enter into risky behaviors knowing that they are protected against the risk and the other party will incur the cost.

This came to mind when I finally went downhill skiing after a twenty year hiatus. Back in my high school and university days, my life revolved around skiing and planning to ski. Not that I have ever been seriously injured while skiing, but the possibility came top of mind recently.

Skiing has changed. I went to the rental shop and they pulled out these new innovations. The skis now have this parabolic shape. I remember reading about them years ago, but I was not aware of what they looked like up close. Bodacious comes to mind. The boots weren’t much different, thankfully.

There was an entire rack of helmets, so I picked up one these things also. Amazingly, back on the ski hill everything worked out. No one got hurt. This new equipment did make it far easier to ski and I was likely way more aggressive wearing the helmet.

I was quite ready to admit at the beginning of the day that I was a less than average skier considering all of the time that had passed, but after a couple of runs all of that confidence came back. Perhaps false confidence, but confidence all the same.

But this is where behavioral economics comes in. When it comes to activities such as driving for example, about 90% of people feel that they are better than the average driver. Almost no one wants to place themselves in the bottom half of drivers by suggesting that “yep, I’m far worse than the average driver.’ This suggests that people are far more confident in their abilities than statistics and the Darwin Awards actually show.

This raises the question of whether insurance induces people to engage in risker behavior than they would if they didn’t have insurance. For myself, I have perhaps an excessive amount life insurance at eight time’s annual salary in the case of accidental death along with some great long and short term disability. I don’t think having this insurance modified my behavior. I certainly wasn’t skiing eight times faster knowing that I would leave a very nice estate.

Moral hazard arises from asymmetric knowledge. One party knows more than the other party. In this instance, the insurer may not completely understand that I intend to engage in risk taking behaviours since mentally I still feel 20 years old. Emotionally, perhaps a bit younger. Physically, perhaps 3 times that. How can the insurer foresee that I might undertake some ‘dumbass’ skiing behaviours while my mental, emotional and physical ages are several decades apart? Perhaps that is already worked into their mathematical models.

This represents a type of ex ante moral hazard, or before the event. I am not a major fan of using an opaque terms of describing a vague concept. But this generally means that I change my behaviours based on the fact that I am now insured. Perhaps ex dumbass ante moral hazard captures the concept.

This compares nicely to the ex post moral hazard. After the insured event has occurred, you are more prone to claim insurance benefits exactly because they are available. Admittedly I use our health care spending account for this purpose. I spend a bit more to get the compressed lens for my glasses to avoid the coke bottle effect I would otherwise need to see what I am doing. I feel enabled.

Insurance companies do take steps to address this increase in use of insurance benefits by adding deductibles and co-insurance. Again behavioral economics tells us that people are twice as adverse to losses as they are to gains. Here we can see that insurance companies do recognize that the rationale person that traditional economic models rely upon does not exist except perhaps only the in the earlier fairy tale type of economic texts. But insureds would still be prone to take care to avoid incurring a loss since there is the frustration factor.

This frustration factor becomes apparent when claiming travel health insurance. My wife and I made plans for a bike trip in Asia. Being the prudent people we are, we purchased the complete trip cancellation insurance. This may be similar to purchasing the extended warranty which turns out to be a costly insurance premium for a low probable event. But buying trip cancellation is the easiest thing in the world. You put in the length of your trip, your age, price of the trip, your credit card number and off you go. You get a nice little brochure almost instanteously.

Unfortunately, my wife got ill just before the trip and had to cancel. Now, there is no way to fill in a claim form on-line. You have to download the policy and figure out how to fill in a claim. This necessitated printing out the form, photocopying receipts and physically mailing the entire package. The number of doctors visits increased since now we also had to provide written reports on why she couldn’t travel and how this was not a pre-existing illness.

Admittedly, this acts as a type of disincentive. Even as a lawyer, I found the amount of paperwork, and I mean actual paper, excessive. The 10 month time and effort to claim under the insurance exceeded the 10 minute time and effort to arrange the insurance. One would hope that the arrangement time and the claim time would be comparable. Fortunately, my wife are completely hung up on this completion thing and made this a personal project to complete.

Research seems to show that insurance does not increase the ex dumbass ante behavior. Insurance does seem to negate some preventative behavior that’s difficult to maintain. It seems to be easier to take drugs to alleviate diabetes than it is to avoid those sugary laced slushy drinks. Insurance does increase use of health benefits, but this may reduce even more costly medical intervention later.

Mark Twain in his speech on accident insurance had this to say.

“I have seen an entire family lifted out of poverty and into affluence by the simple boon of a broken leg. I have had people come to me on crutches, with tears in their eyes, to bless this beneficent institution. In all my experiences of life, I have seen nothing so seraphic as the look that comes into a freshly mutilated man’s face when he feels in his vest pocket with his remaining hand and finds his accident ticket all right.”

So insurance companies, and lawyers, face a discerning public. I am sure I should apologize to one group for placing those two groups together. But like anything, once you really need insurance, or a lawyer, you’re glad it’s there.

Pixabay

+Source: pixabay.com

Nature Deficit Disorder and the Cottage Preseason Opener

pexels-photo-42240Nature deficit disorder appears to be a real thing and spending time at the cottage provides a great fix. As part of this, my family and I have been unintentionally creating additional habitat for various invasive species for almost 17 years.

We purchased an A-frame cottage on Lake Winnipeg to get closer to nature.The two-story cottage and the open design allow everyone in the family their own personal space. The metal roof and cedar siding keeps out the elements, but not the rodents, which need their own personal space.

Opening the cottage after a long winter became a joyous occasion for the family. The main reason for this joy includes my travelling to the cottage by myself beforehand and conducting a cottage preseason opener. Like baseball spring training, I do some preliminary cleaning to work out the bugs. And of course by bugs, I do mean insects and other things that would drive away family members till the incident was forgotten.

In the first year, the flat roof over the sunroom leaked. The good news was that the vapor barrier captured all the water. The bad news was that these bags of tarry water hanging from the ceiling pushed out the ceiling tiles and made the room reminiscent of Invasion of the Body Snatchers.  Making an incision in the hanging cocoon and draining the water remedied the situation.

We recently installed a small outdoor hot tub that we can plug-in for the summer. When lifting the lid for the first time of the season, I ask please don’t let me find a dead small mammal inside. This is only exceeded by the triple please of don’t let me find a terrified, alive and wanting to escape small mammal inside. So far, we have been good.

When cleaning outside, I use the gas-powered leaf blower to man-dust the decks. I do walk through the cottage, engine off, to clean the upper deck. Only a few times has it passed my mind to quickly man-dust the interior. Who would really know? But there are the gas fumes. So next year I am so going electric leaf blower. The gas blower works very well in the garage, especially if no one is watching.

Inside the cottage, checking all of the furniture, particular the beds, for mouse droppings, comes next. We keep the cottage warm during the winter, so finding a soft fluffy mouse nest in one of the beds is not beyond consideration. A mouse nest would require a cathartic cleansing of the linens. And by cleansing, I mean burning.

Cleaning inside causes a bit less stress. The freezer has to be cleaned out to make room for the coming summer. Sometimes this means tossing everything. Sometimes this means not letting things go to waste. This spring I had to dispose of a half container of crystalized ice cream, and by dispose of I mean eat. It tasted liked solidified sugar. And regret.

The main event involves crawling beneath the cottage. We have this area closed in, insulated and covered in plastic. Dark, dusty, bit mildewy, no one could hear you scream, if you even had the chance.

One late fall, some mid-sized mammals had moved in underneath the cottage. The tunnel they dug underneath the wall enclosing the bottom of the cottage allowed the cold winter air to directly hit the pipe coming up out of the ground from the well pump. This resulted in no well water for the rest of the winter and no working toilets. So during the summer, I closed off their hole and installed more furnace venting to direct heat towards the corner to prevent the pipes from freezing. The following winter, the hole was redug, and the venting was ripped apart. Apparently they didn’t like the air flow. They continued to show their displeasure by scat throughout the level beneath the cottage. Mid-size mammal droppings are a general sign to be careful, but I would swear that the droppings were arranged into an actual sign that said ‘stay away’. It may have been the darkness.

The forested property provides a tremendous view of the lake, which with the waves can look more like the ocean. Lake Winnipeg suffers from some eutrophication. Surface runoff from the extensive watershed and fertilizer use creates algae blooms. These blooms create green waves with the consistency of green paint. Waves glurp when hitting the shore. And waves should never glurp. Not a sound you want to have alongside your morning coffee.

At some point during the summer the sun brings out the flowers and butterflies. When the family comes to the cottage, the BBQ comes out, along with the home-made beer, bicycles and kayaks. This sooths the nature deficit disorder somewhat, and we continue to get inoculated as often as possible. There remains a difference between watching nature, and nature watching you. Nature normally comes at night, with many pairs of eyes that appear to glow in the dark. But, we are intervening into nature’s arena and we should be respectful. And watchful. Always watchful.

 

 

Photo by mali maeder from Pexels https://www.pexels.com/photo/snow-wood-forest-winter-42240/

Biking Cambodia-Hanoi stopover

Brent and I managed to snag a couple of free coupons for egg coffee. Yes, raw egg dropped into your coffee like cream apparently. Quite tasty.

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The restaurant is actually on the second floor and there is only a small alley to access it. Something that no one would head down without someone with you.

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In Hanoi, I tried to capture the amazing dance of the scooters. How they manage to mingle about is amazing.

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In the evening, people gather around the lake. A central spot for socialization.

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A couple were having their photos taken for their upcoming celebrations. So  I couldn’t resist.

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Biking Cambodia-Hanoi Stopover

Brent and I are just in the process of looking over the courtyard to the entrance of the National University.

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We grab one more photo at the entrance to the University.IMG_3762

We leave the grounds and start walking back to our hotel. You can see that the University is completely enclosed by stone walls. We must have looked like we knew what we were doing since we were stopped by other tourists looking for a way in to the University.

Scooter transporst is really the way the majority of people get around in Hanoi. Don’t forget. Don’t show any fear.

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Here is an interior shot of the mall I had described earlier. There are numerous car dealerships inside. The pockets of wealth are amazing considering the poverty you see everywhere else.

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Biking Cambodia-Hanoi Stopover

Brent and I continued our tour of the National Museum in Hanoi. Some of the ancient texts are shown below.

The courtyard holds displays of various graduates. The Plaque show below describes how they retained the dedication steles of some of the oldest graduates. These were erected on turtles. One of the four holy creatures.

 

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The Dragon was a great attraction. I attempted to find out a bit mroe about the urn. But you can see the dragon relief on top of the building in the background. The dragon is one of the countries four holy creatures.

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