Self inflicted paranoia - The "secret" of insurance deductibles

It is a well known fact (or at least strong belief) that most people make very wrong choices with respect to buying insurance products. The majority of people over-insure, that is, pay much more than they should, or just neglect to purchase insurance altogether.

This post turned out to be a bit long and somewhat technical, but here's my promise - if you can keep with it until the end, the chances are you will feel fooled by insurance companies, but will also be able to save lots of money in the future.


As someone who studies consumer decisions, buying insurance is one of the most fascinating phenomena to study, for several reasons:

1. Insurance is a complex product, containing many details, but at the end, there is just one price (premium) to pay.
2. Consumers buying insurance need to make many decisions about many "parameters" of the product they buy.
3. Insurance sells something in the future (coverage against negative events), that might happen or might not - who can predict his own future with accuracy?
4. The product sold is very emotional - it is related to negative events with big and bad impact. Most people have a hard time entangling their emotion about the event itself and the decision of how much coverage to buy.
5. The insurance industry (in the US) is rather competitive, so the products are abundant, advanced and should be fairly priced.
6. People make the decision to buy insurance over and over again, many times annually for a period of 30-40 years. This means there is ample time and information for learning from past mistakes.

I am fascinated by this phenomenon, since it shows how firms produce a complex, emotional product and profit on consumers' inability to understand too many details, or their plain fear from negative events.

Are VCs the new recruitment agencies?

Roughly a month ago I had a lovely brunch with two friends, both currently in the online advertising industry.
Our chat touched on many topics, from crazy Halloween parties to China's media agency.

If you ask yourself "Huh?", the answer is Yes - they are connected in some twisted way.

We finally resolved to talking about the recent burst of small startups, small investments and multiple small exits of companies occurring all around the bay area. Are these signs of a new "tech bubble"?
Some attributes of the current frenzy are similar to previous tech-crazes, but one is unique - the exits are not IPOs but rather many small acquisitions by larger firms, and the investors are not "regular" people doing it through the stock market - they are "sophisticated" angels and acquiring firms.

At one point, I raised my hypothesis that it appears that investors are recently being "exploited " as recruitment agencies by entrepreneurs and acquiring firms.

And it goes like this.

Once upon a time, perhaps 5-10 years ago (or more), founding a startup required significant initial capital. Getting the business to grow and to become profitable, or even with decent traction required on the order of $10M-$20M if not more, except for certain stellar cases.

This caused two phenomena - entrepreneurs had to either raise considerable amounts of money to start a company, or join a large company with a strong financial backing to create their dream products. It was not possible to just "create it and see if it works".