Ira's blog concerning statistics got me thinking about a couple of situations where ignorant decision making is very important. One is, of course, recreational gambling. Gambling could not exist if we had information so complete that the outcome would be a certainty. There needs to be sufficient information to allow computation of the betting odds, but not enough to allow computation of the outcome. The other is life, casualty and all other types of insurance.
Generally speaking, information is gathered in order to compute insurance and annuity odds. It is not surprising that premiums are dependent on the odds computed from this information. However, too much information is adverse, because the outcome becomes determinist rather than statistical. As an extreme case, imagine that genetic and medical evaluation could pinpoint a young married person's death from natural causes within a year or so. Some people could not obtain insurance except at exorbitant rates, while others would not bother to purchase insurance at all.
If this seems far-fetched, think about the fact that the government has already had to step in to enforce ignorance. We know that the risk of death for an Afro-American is statistically higher than that of the other ethnic groups. This piece of information must be excluded from a statistical calculation with respect to insurance premiums. Women live longer on the average than men. This piece of information must be excluded in the computation of annuity pay-outs, by order of the supreme court.
Another querky aspect is politically-correct or public relations effects on ignorance requirements. Automobile insurance companies charge lower rates for teenagers who have passed through a drivers education class in high school. Studies show that they have a lower accident rate. I had a hunch about this and contacted an insurance executive. It turns out that the lower accident rate can be completely accounted for by the fact that the better students take the elective drivers education course. The auto accident rates correlated just as well with grade point average. When that factor is eliminated, there is no difference between those with drivers education and those without. When I asked the executive why his company gave drivers education discounts based upon false causality. he responded that it was a matter of public relations that they not be perceived to be against education.
Not only can statistics lie, in some cases they MUST lie.