I know the feeling all too well – the sudden realisation that one’s keys are lost. The numbing sensation with each passing minute that one’s access has been denied to yet another place: home, office, locker, mailbox, and bike shed. So when I read my colleagues recent blog post about a friend robbed by a junkie, I was painfully reminded of an episode two years ago when my keys vanished. Panic reigned. I too had decided against the option of an insurance against the loss of keys – a waste of money, I thought at the time. But now I was faced with the stinging cost of replacing locks at home and at work. In my desperation, I recall checking with my insurance agent to see whether I was really uninsured. At the same time, I searched for my keys in places that I had already searched.
Fortunately for me the, story had a happy ending: an employee at a local snack bar had found the keys and had held on to them for safe-keeping. By then though, the lesson had been learned. At my earliest opportunity, I extended the coverage on my third-party insurance to include the loss of keys and would probably have done so at any price. That something like that could happen again, of course, I evaluated with a much higher probability than before. Although, since then, I have neither lost nor misplaced my keys, I draw immense pleasure from the knowledge that, if I did, my insurance would spare me any costs (beyond the excess or deductible).
The tendency to overweight low probabilities is typically human. For the certainty of being able to avoid losing the things we have, we are prepared to pay a high price. We buy overpriced insurance for modestly-priced consumer durables; we take profits early on good performing investments for fear of seeing the gains evaporate. What’s worse, the behaviour is more frequent and more marked when we are emotionally burdened. This means that during periods of anxiety, panic, anger or regret, we are more likely to reach for the overpriced insurance. However, this doesn’t mean that one should fall into the kind of lay economic rationalism that denies all psychological needs. Even though I take especially good care of my keys these days, the peace of mind my insurance brings still feels very good.
Related posts:
- Physically Lost, Mentally Found
- Flight to risk?
- Bazaar Behavior
- Third-Party Insurance for Mr Bean
- The Rogue Within
Tags: insurance, probability weighting