Subject: Re: Support as insurance
From: Ben_Tilly@trepp.com
Date: Sun, 28 Nov 1999 15:11:04 -0500


Russell Nelson writes:
> Ben Laurie writes:
>  > You can't have it both ways: free software can't be worse than
>  > prioprietary software because it has no warranty, but giving a warranty
>  > indicates that its worse than proprietary sofware. Eh?
>
> No, that's not my point.  I'm just saying that it's difficult to treat
> support as insurance, and even more difficult for a free software
> company.  Let me try explaining it a different way.
>
> Insurance is a bet.  You're betting that the disaster *is* going to
> happen, and the insurance company is betting that it isn't.  The
> reason they make money is because they're in a better position to
> evaluate the risks than you are.

Wrong.

The reason that they can make money is that they can better afford a
disaster than you can.  They can afford to average over many people and
many accidents.  You typically cannot.  The agreement is mutually
beneficial.  They benefit on the odds, you benefit on the guarantee that
you do not personally have the resources to handle.

On a related incidental note.  The "ideal" investing strategy in many cases
is to maximize the expected value of the log of your net-worth.  This is
NOT the same as seeking to maximize your net worth.  The difference between
the two strategies comes when you have to decide how much to place on a bet
that is probably profitable.  The ideal strategy forces you to hold some
back so you have no risk of being wiped out to where you cannot rebuild.
The foolish strategy is to bet it all, each time, because that is how you
can theoretically make money the fastest.  And yes, this does have a lot to
do with why you should purchase insurance...

> In the case of support as insurance, the disaster is that you'll
> actually need to rely on the company to fix their software because the
> software doesn't work for you.  Can you see how you might know more
> about this eventuality than the company?  This is the problem -- when
> you're allowed to affect the outcome of a bet, the bet is unfair.  Las
> Vegas has laws against entering into bets except those which have been
> studied in advance and are considered to be safe from this moral
> hazard.  And if you get to decide whether the software doesn't work
> for you or not, then it's an unfair bet.

As I said elsewhere, I know of a concrete example where someone purchased a
warranty on free software but it came part and parcel of a Y2K code review
and audit.

Who was in a better position to judge risks there?

Cheers,
Ben