Please Steal My Car (Ep. 82)

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This week’s podcast is a new round of “FREAK-quently Asked Questions,” in which Levitt and I respond to queries from readers and listeners.

(You can download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript here; earlier FAQ podcasts can be found here.)

You posed an astonishing number of very good (and very diverse) questions; I’m sorry we only began to scratch the surface with our answers.

The conversation covers junk food, obsessions, insurance (sexy!), what to do if you win the lottery, and best of all, the easiest way to make an economist (or Levitt, at least) really happy. Here’s a hint.

Enter your name...

I think the free rider problem with potluck is balanced by the extra social status I get for bringing something good. I've had professional chefs recommend my contributions to other people in line. If you want to call someone who's good and efficient at making food, you should call me.

But having said that, I never fry chicken for a group, and I almost never do it at home. If you want fried chicken at a potluck or picnic, you should get a bucket from KFC. But you shouldn't hide it: you should walk in proudly and announce that you are just such a busy person that you didn't have time to cook, so you brought fried chicken instead. (See Hamermesh's recent post on seeming busy as a status symbol.)


Second the increased social status thing. Note that you get extra points when people ask where you bought whatever you brought.

As for the KFC, unless they've changed their recipe in the last couple of decades, you people must have a much higher grease tolerance than I do.


RE: The end of books. I think reaching the end of a book makes you more likely to reccomend it because you can then have a completed memory of the book, which makes it easier to evaluate, as our evaluation of experiences tends to be based on the high point / end point average, at least, according to Daniel Khaneman. (who I think is right).


Here is a question for Dubner:

Where do you park?


What about Jello for dessert? Orange and Lemon.

Bradley Nowell

Since there are no takers on the insurance question, I will dive in.

"what would the world be like without insurance? Would we be better off or worse? Would people take more care, or own junk? What effect does having insurance have on society?”

A world without insurance is basically self-insurance. If something goes wrong, you pay. If someone else is at fault, your recourse would be the tort/legal system. In economic terms, the question is which system has higher transaction costs, no? Everybody loves lawyers and going to court and the long delay in disposition of cases, right? No insurance v. more lawsuits?

Insurance business is all about risk allocation. Insurance companies try to quantify it in order to make a profit from its use of premiums collected now versus its exposure to claims later. But I think as noted by Mr. Levitt, the individual insured is more interested in "peace of mind" now as opposed to how much the bad event will cost later. And as demonstrated by the LoJack example, it is hard to put a $ value on that. And who thinks in those terms anyway?

Why not model all insurance on the worker's compensation paradigm? A no fault system where losses are covered, circumventing the legal system, and premiums are just redefined as "a tax." Justice Roberts are you there?



If you love wings, the best wings in Chicago are at Wings around the World. They have dozens of greats flavours from Maple Syrup (Québec) to Kamikaze (Japan), spicy, sweet, whatever you like.

The added bonus is that they are located near U of C in one of Chicago's most dangerous areas (75th and King), so you might get your car stolen too...

Jeff T.

This podcast starts with a really catchy sax tune and then a great violin piece remenicent of Hot Club of France. Can you tell me more about these so I can acquire them, legit of course.


Great podcast but I think the discussion on insurance missed the major advantage of insurance through a centralized company compared to self-insurance of investing your own premiums. Insurance provides coverage for a shared risk with a high chance of that risk being realized but significantly lower impact on the collective insured body. If a single individual decides not to purchase insurance and instead saves and invests the money they would have paid in premiums toward the same goal of self-insurance, then there is a very low risk that the insured incident will occur. However, if the incident does occur, the impact to them is still substantial as the sum of money saved and investment earnings received will still be very likely to be far below the need to cover the incident. Contrast this with a small insurance co-op where ten people pool their premium money and invest together. There is a ten times more likely incidence of the risk occurring but if it occurs, there will be ten times more savings and investments to cover that risk, which now is significantly more likely to cover the incident and not harm the collective. There is still a very small risk that the insured incident will occur multiple times, which still poses a problem. This same idea is compounded through large insurance companies that take premiums from millions of individuals and shares the risk across millions. This is what we have which results in the risk of an incident causing catastrophic damage to an insured is minimal and the premiums each person pays is relatively small.

To the point about overhead of insurance, the overhead of claims processing is necessary for large insurance organizations but relative to the cost of premiums and insurance risk is likely low, as evidenced by relatively low insurance premiums we pay for standard insurance.

Insurance company profits can actually be eliminated if there was an insurance co-op where the insured parties started a co-op which others could join and the sole purpose was to provide coverage as a non-profit that provides a service to it's customers which are essentially also shareholders. I'm not aware of any insurance co-ops today. With the surge in co-ops in other areas, it's possible we'll see these in the future.



If you recommend an unfinished book to a friend, with any luck they will tell you how it ends and save you the trouble


Your comments about the need for insurance or the rationale for purchasing omits a key issue: insurance policies generally are not actuarially priced (instead, as a commodity the pricing is subject to ordinary supply and demand). Accordingly, when insurance is irrationally discounted (which is usually the case) its purchase is highly rational and advantageous.


I usually am impressed with your logical thoroughness, but on this piece I had a couple points of contention. Quite too easily you oversimplify complex situations like a pot luck while also seemingly over-complicate rather simple situations such as homeowner insurance.

As of this writing about 99% of the houses built in the world are made from water-soluble products (wood, plaster, gypsum, paper, paint) and almost none are built using fireproof materials. The purpose of insurance isn't to move money from a situation where it is less valuable to more valuable, it's to hedge against catastrophic ruin. Let's say that instead of putting $850/year into homeowners insurance I put it in the bank. After 30 years (mortgage length) I'd have a nice chunk of money, probably north of $30k. Enough to pay for rent on a new apt. if my house burned down OR to repurchase the items burned in a fire. If though the house burns after 5 years I am SOL, with both housing expenses and a mortgage to pay for, let's say $1300 + $800 to live in an apt. that's worth $800. Quite easily this can tip the scales to financial ruin. We are good at feeling okay about our lives if things go back to a steady state, but not if they continue to go wrong.

On the second piece. It seems that Levitt actually said that it makes more economic sense to buy KFC than to fix food from your own kitchen. Did I hear this right? He said that it makes economic sense to spend $20 on $8 of chicken, $0.40 in corn flakes and flour, $1.30 in oil and $0.15 in spices? Even if we simply included economic forces instead of emotional, social, environmental and moral reasons (such as the guilt you felt from dumping KFC next to a 3-bean salad), we are still left with a huge gap. If we include just the great feeling that comes with taking a huge green salad to a pot luck, eating amazing food that you wouldn't have thought to make and then having left overs afterwards, the economic differences are compounded. Sorry but your attitude isn't logic, it's justification of laziness, a lack of caring for the social situation and expendable money.



I personally don't know anyone who WANTS a lot of insurance... it's just something we're required to have. It's quite frustrating to have to pay such high rates for them just to take our money (or so it feels). Also, if something happens to your car and it wasn't your fault, for example, your rate goes up because it was an "incident." I don't think anyone likes that.