Wildfires, Insurance, and Planning for Disaster

You have like all these oscar Ward winning films and the art we saw it was interesting, and you know, it's a culture that's gone from being for a long time a very poor country to being relatively wealthy in a hurry.

just it's just interesting. I'm not sure how to how to like put without having too many stereotypes. I suppose, yeah, which, see the contrast back to back was fascinating to me.

lot out of. On that note, let's talk about the LA fires. Obviously, you know, much more serious, much heavier topic, but I think it's a really important one for us to discuss because obviously there are so many topics of risky decision making, risk perception, how we act on risky information, and I think we want to talk about it from

two different perspectives, right one. And this is something we've talked about on the show before, but I think it's incredibly relevant and kind of relevant for the future and for the entire country, not just for California, which is the insurance angle, right, and the future of the insurance industry. How to think about risk from that perspective, both as the insurance company, but also as the individual purchasing property,

purchasing or electing not to purchase insurance. And then I'd also like to talk about kind of the individual psychological risk perceptions here, not just the insurance component, but like, you know, what happens if you're in one of these zones, how do you handle risk? How do you respond? I think that those are two related but distinct areas, and I think that both are really interesting and core core risky decision metrics. So let's start with the insurance angle.

We've talked a little about this before in California, not just in California, all over the country, you know, Florida, some other states. Insurance have been pulling out of regions where the risk of disasters natural disasters has risen, and that is a lot of different parts of the country.

And in the last few years insurers have started using different models, right, because insurance isn't backwards looking business in general, right, you look at risks and then you try to kind of extrapolate, and that's not working anymore with climate change, with all of these things happening, and so especially I don't know whether all insurance companies are doing this, but I know that a lot of insurance companies and a lot of the insurers in California have started using AI

and other things to try to change their risk models to take into account the fact that the world is changing. And they even flagged the Palisades as an incredibly dangerous area. And so some of those you can't get insurance anymore. So, yeah, let's let's talk about it. Let's hear some of your thoughts on this process and on what it means.

educated guesswork. I guess, i'd say, right from what little research I've done on you know, what's the effect of climate change and particular types of disasters.

my home gets broken into whatever. Like that's more stochastic and random, not perfectly. There's probably some correlation, whether there's some gang of I don't know, bandits or thieves or whatever. But like, but you know, if this disaster all comes at once and all of well not all of Los Angeles, should emphasize. By the way, LA is a very it's a very large area. I mean I was very briefly in LA on the way home, and you know, we were in the part of LA which wasn't on fire.

But it's a very large area and certainly the you know, expensive area too, and so so you know, one issue is like the modeling issue.

Until very recently, they couldn't raise their premiums as much as their models said they needed to raise their premiums. So instead they just said, okay, fine, like fuck it, we're not going to ensure these places like you can't renew your insurance, you can't, you can't do anything. And that puts a lot of people in very difficult situations.

And the areas that are burning in La Sure, you have the Palisades with some incredibly expensive housing, some of the most expensive real estate in the country, but then you also have parts of you know, Altadena and other parts of LA where there are lots of people who are poor, who have been there forever. And you know what in the world happens right when you can no longer, when either the insurance says we won't ensure you or the premiums are so expensive, then you're like, I can't

afford this anymore. You do, and there are families that chose like last year, right, I'm not going to renew my insurance coverage, and then this happens.

moving target. A second is that there's some degree maybe less so with like home insurance, but some degree of adverse selection is a term where if you're someone who buys insurance and not everybody does, and maybe you're more of a risk than the model would let on, right, you're buying insurance. I mean the anauochy I give is like if you have like an all you can eat buffet, right, there is adverse selection for who comes and eats at the all you can.

dollar amount. Right, the risk of your house burning is supposedly lower than than the premium that you get from it. But you know, you much rather pay the small amount then than have to have to uh lose half your net worth in one inverno basically, But yeah, the third issue is at California is a state with lots of

I wouldn't even say well intended regulations necessarily. I mean it's I don't think it's the most economically literate state, frankly, or the postumakers are especially smart, uh, frankly, but you know, based in a combination including by the way, some of these are things that like are ballot measures passed by you know, to stay with a bunch of referendum right,

everything goes to direct democracy. People like me might think this is kind of wonderful in the abstract it's ruled by true democracy and not ruled by the expert class, et cetera.

losing business. And so you understand that, but then you end up in this situation where like, what the fuck do you do?

that shouldn't be the case. There should be especially if you're somewhere like California where you know this is a thing there, they should figure out a way to make this work or you know, or not and just not let people live there. You know that it's kind of one of these one of these very very stark contrasts.

think up to three million dollars worth of coverage. So let me be a little bit of the turn in the punch bowl for a second. Right, you don't see a lot of efforts to like be honest and forthright about the about the fire risk here, right with the way different properties are built and the amount of distance between for example, the amount of distance between this.

There is reluctance to do that. Whenever you do one of those things, you have to go through five years of regulation and environmental studies and whatever else. Right, But there's not a lot of honesty about like the way these properties are designed to mitigate fire risk. And maybe that will be there will be more now, right, but like you know, and that kind of puts homeowners at risk, and so you know, so if your home can be covered by insurance, then that can create a moral hazard.

It's the other famous insurance turn along with ever selection, right, where like if I am covering, I mean the classic example is like the bank bailouts, right, where if the government steps in and prevents whichever companies Morgan Stanley you I want to accuse because companies, I'm sure all the all the all the big Wall Street firms had like something's evolved, right, But if they're going to come and bail you out if you fuck up, h then you have an incentive to like make risk your bets, right.

And I don't think homeowners individually are are quite as calculating as like the banks might be. But like I almost as a rule that like, if you create a rule where there is financial upside to basically what we what we term like an exploitative strategy in poker, right.

And sometimes they're gamblers, right, sometimes they're actually risk seeking in this particular case because they kind of take the gamble that, oh, sure, like there's a risk of a fire, but like my house isn't going to burn down because it hasn't burned down for you know, however many years, and there are properties. So one of the one of the places that burned one of the businesses that burned down in La is real In, where I've been. You've probably been there too. It's on the way kind of

on the road to Malibu. There's only one road by the way, which is also not great in terms of natural disaster and like trying to get away and trying to get the fuck out of there when it's burning, which is why people have had to abandon cars and bad things have happened. But real In burned down and it was there for I think over thirty five years, right, that specific business. But if you've been there for thirty five years. You think, oh, well, yes, they're fire risks

in Malibu, blah blah blah. But we've always been fine, right, so we're going to just continue to be fine. People do have this tendency to be ostrich, like right, ostriches are the ones that bury their hand in the sand, and do I have the right analogy? And you want

to when it's convenient to ignore these things. You want to ignore it because you want to be comfortable, Like you don't want to make the tough decision of saying, Okay, you know what, we need to sell our house and we need to move to a different part of the state.

We need to move all the way out of California. Like, people don't want to make those hard decisions, and so instead of doing that, they're just going to fudge the risk in their mind and take something which to us looks like, you know, an irrational or very gambly decision, which might not actually align with their risk preferences. Right. I doubt that all the people who had houses that

burned down were risk seeking. Some of them might not have cared, right, like some of the If you're very wealthy and you just say, Okay, if my house burns down, fine, I'll just rebuild, right, Like, That's that's one way of looking at it. But I'm talking about like the lower middle class people who aren't thinking that way. They might appear risk seeking because of that choice, but in their minds they're not right. They just they do they miscalculate willfully, if that makes sense.

a new car, right. It doesn't really affect me much either way, and so like, so I don't think it's necessarily I want to be very careful, right, But like if having your home destroyed by an earthquake or a flood or a fire is something where you'd make out okay, right, notwithstanding the psychological damage and the damage to the artifacts and the belongings and your pets and whatever else, right, and you're safe, well, like, it may not be rational to buy insurance, right.

to you or two people you know. And I wonder as kind of these risks are spreading to communities that you know before thought that they were relatively safe, as we have so many properties that have been destroyed, so many people that have been displaced, if that's going to start changing, right, Like, I'm in Las Vegas right now, and I've heard multiple conversations around Las Vegas about you know, is Las Vegas going to see an even greater inflow

of Californians than it has in recent years after this? Right? Are people going to actually change their kind their risk preference is based on the newly available data. There are some Hollywood executives who are starting to look at building studios here right. There are a lot of people who are saying, Okay, you know, this might have been the tipping point. And I think that that's also interesting to observe and to see what will happen.

home theater or whatever. Set up that like just a special occasion kind of thing now, and like that's kind of a permanent change that maybe happened in two years when it would have happened in ten years instead. Look, California has been losing population. It's gonna lose I think it's lost an electoral vote and will lose more, probably at the next redistricting process. So in a relative sentence relative the rest of the country, it's no longer a

growth state, exactly. You have movement all over the West right to Nevada, to Idaho, to Colorado, also like Texas and Florida, which are fairly good substitutes for it.

that seems not to be going away very much. But like, but yeah, I don't know, I don't think i'd want to live in No.

Certainly would never buy property there because you know, I think that the risk reward I don't think it's a rational decision right now, And you know a lot of people are going to disagree with that, because everyone's risk preferences are different and everyone's you know, decision matrix is different, and I think that that's that's important. Right, We're right

now we're talking about personally the calculations. One final thing that I wanted to talk about is the actual experience of fires, right because there are people who died, and some of those deaths couldn't be prevented, but others were because of just frankly, absolutely asinine decisions where like you, you know, decide that you're going to pick up a hose and protect your home from the fire, which is

endangering you and endangering firefighters. You know, that's it's when people say evacuate, you're supposed to evacuate, and I think, you know, looking from the side, you say, that is really asenine. But for some people, if they've never experienced a fire, right, if they've never seen how quickly fires can spread, it might have seemed rational. They might have been like, oh, the fires a block, like it'll it'll

be fine, right, I have time. And what you don't understand because you don't have kind of the experience, the visceral experience of it, and your brain can't comprehend it when people are telling you go now, it's just how quickly fires can spread, like it is insane. You remember last year we had a fire in our backyard in New York when there was an explosion in the middle of the night of batteries and of the of a

restaurant and our building almost burned down. But I just remember from the moment of the explosion to like the fires being taller than our windows, which is a fourth floor apartment. It was seconds, right, and I was like, holy shit, Like it went from what's going on too? We need to get out right now? In under a minute, and so I think that and that's not even a wildfire, right, That's that was a very different situation. That was an

electrical fire. But it's I think that people's risk in the in the moment, you know, in that hot situation, your risk assessment can be off and you can say, oh, I have time, I can do this, I want to protect my home, and so you just lose perspective that actually the only thing that matters is your life and the life of firefighters, and so people make just really really stupid decisions, which is why I always say, like

you need to in hot situations. This is like poker too, right, and like being on being on tilt and poker, like you need to think of it in advance, like how am I going to react to this situation, because in the moment, you're going to make a bad decision if you don't know what you're going to do. If you haven't thought it through. You might think that you'll be able to think clearly, but you can't write when you're emotional.

When you're stressed, clear thinking goes out the window unless you already have a plan of action.

in blinds to pick up initially? Right? I maybe it's not the best analog, but the point is that, like, danger can happen quite quickly, and you don't necessarily have a moment to like kind of catch your breath, right. I mean there are different cases with with hurricanes, which is something that we deal with a little bit more on the East Coast, although not in New York that we wouldn't like Florida or something like that, Like there you.

It creates this perverse incentive where you personally feel more invulnerable than you should because you've gotten away with it in the past, Right, like California, while my house hasn't burned yet, Right, You've told me to evacuate before and everything was fine, So I'm just going to be comfortable and it's all going to be fine, and once again head in the sand, because that's just that's easier, right, that's the path of least resistance, and you know it's

scary to just leave and to do it quickly. Do you have a Do you have a go bag Nate by the way or no? No?

So after after those experiences, I have thought a lot about you know, go bags and the fact that this is something that you just need to be able to grab and it should be light, right, there shouldn't be too much in it. Mine is like passport, copies of documents. Cash. It's really important to have cash, even though we're turning towards the cashless world. But if you know, if there's no connectivity, if you can't use Apple pay, if you know, if if shit goes bad, like cash is actually an

important thing to have. Laptop, right. I when when my apartment you know, was threatened by fire last year, I grabbed my notebook because I write all my first drafts by hand. So and I don't you know if that's lost, like you know, huge chunks of my next book are lost, So I grab that, you know, laptop, passport, and you're

out of their cell phone. But I think that it's important to just figure out what are those things that you need immediately, and also the things that you can't replace, right, Like if you have photographs, I my grandmother's letters to her sister, which are you know, handwritten. It's their correspondence and it's you know, the only thing I have left of her. So like I would grab that even though it weighs a ton, right, it's not like a it's

not a life changing thing. But to me, it's something that like I could never replace, and that's really really important. So I think that you have to there's like a balance of obviously water some bars, but you need to replace that stuff, right, Like some stuff goes bad in your go bag, you need to replace it constantly so that it stays fresh. And so it's a little bit of a pain in the ass, but once you have it, it's pretty easy.

of on an island. Right, there's only so many physical ways to like connect with the rest of the United States, right, and so and so that gets a little bit frightening.

take this? And obviously there's like a you know, there's a full spectrum from no go bag whatsoever. I'm totally fine to prepper right, and I've got a bunker. I'm that I paid for that I'm going to go to and like I know exactly, you know, off grid what I'm going to do. So there's there's a whole lot of room in between. But I think that doing the bare minimum is a good thing to do. It's just that to me is like where I where I come

out rationally. I did not end up buying an inflatable boat, by the way.

make one last push. People do like to nor things that are scary, that are inconvenient, that forces them to make difficult decisions. Don't do that, right, and instead, like actually sit down and do a rational calculus, look at the numbers, look at the risk, and try to figure out if it's worth it or not.

in the gaming quote unquote world more general. But parts of the River have had an increase in their political power.

the two together? Right? How do you how do you make the two mesh and how do you actually make it a productive thing as opposed to you know, two sides entrenching against each other and and polarizing even further, which is obviously one one possible outcome.

of someone who's on a winning streak. Right, I mean, they not only have one in all sorts of ways in terms of becoming wealthier and wealthier, right, but also now this faction of the River. Again, I think the average person the river probably is a moderate Democrat. But this faction, I just said, this kind of kind of gigantic wind. Clearly, you know, they were backing Trump, and clearly they're going to have I think a fair amount

of influence on Trump. It's already also also bolstered Elon's net worth in certain ways, right, even without kind of electing anything untoward. Right, His business are all subject to regulation, and if you have a more friendly regulator at office, is probably worth something to you.

of bad shit happens from that. And to bring it back down to kind of the poker level, right, think about poker players who are on a hot streak, right, who are running well, who are son running in poker terms,

and then you know, they think they can't lose. I'm not gonna I'm not going to mention the name of this player, but there was a player who went on this incredible streak a number of years ago and like just would would win everything and ended up winning, you know, shit ton of money and just like couldn't lose, and people are like, oh my god, this is like the

best player in the world. And then the sun run ended and I remember one specific stream this was televised where this player lost, not even a flip, like it was just like lost and all in and was behind and stayed behind, didn't hit the miracle card, had always hit the miracle card in the past, and was you know, just expecting it to happen and it didn't and this was a huge hand and he was out of the tournament. I could say it was a man, right, because we

know that ninety seven to ninety percent. I don't want to I don't want to put them on blast right now, but this is one of the this is one of them. Maybe maybe another time. This was one of like it was an epic meltdown. This person like got up from the table and threw the chips, like just threw the chips at the other player and out the dealer and stormed off, And I was like, holy shit, Like this

is someone who is not used to losing. And when you when you are at a poker table, like you can watch the stream and laugh and be like haha, right, sun run over, like and you do not your mental game because this person also pride in themselves on good mental game, Like mental game non existent, like you've just

been winning. But when you when that happens now, like let's go back when when that happens in Washington, the stakes are much higher than you know, throwing chips at a player, which, by the way, if you play poker, big poker, no, no, you never throw your chips right, Like that is a that is a big etiquette no. No, Like chips should never fall off the table, like do not do things with a lot of force, like just be be nice about it. Splashing the pot not good.

So Yeah, when that happens in Washington, consequences are much more dire and it's no longer quite as amusing. So when I always say, like, beware, people who've been on huge winning streaks, right, their decision making is going to be colored by.

and also, you know, sometimes disappointing. And some people are aware of it, like I Caxton, you know, in the Biggest Bluff, I have a section where I talked to Ike about superstition and he fully owned it and he's like, yeah, I know this is totally irrational, but like I'm gonna do it anyway, right, I'm going to have my like rituals, et cetera. But then there are other people who are like, no,

I'm not superstitious at all. Oh, yes, but this is the same shirt I was wearing from day one of the tournament because you know, I've been well in it. But no, I'm not superstitious at all. But I think I think that that's perspective that it can't hurt, right, Like, you know, it's probably it's not. It's it's bullshit, but like, can it really hurt? And my argument is yes, it can hurt because when your rituals, when your superstitions are disrupted,

it can actually really fuck with your mental equilibrium. Right, Like what happens if that lucky shirt that you've been wearing every single day suddenly you can't find it, or like you know that if you're staying in a hotel, like you know, got lost somewhere, housekeeping took it, like and then suddenly like you have a day four restart day five, you're deep and like you're thrown off by this. And I wrote about this, but it's happened to Olympic athletes.

It's like there was one Olympic athlete who lost her lucky necklace right before a run and like just completely fucked up her run right like, So, yes, there is a downside to this. It can hurt because when you're kind of reliant on that it can take, it can be really difficult to kind of to move past it. But I think this is a This is a good way to wrap up the show because in some ways, like there have been some themes that have gone through all all of our segments today, from fires to now.

One of them is kind of the irrational exuberance and people people not making correct decisions because they're a little bit overconfident and misperceived risk, whether it's risk of fire.