Insuring Intent
A Review of Chaos Theory

by Silas Barta

Anyone who knows me knows I like to reference Professor Hans-Hermann Hoppe. One of my favorite things about him is his carefully chosen term for market anarchy: the natural order. It conveys exactly what everyone should regard market anarchy as: the natural system that is always begging to show its head, to pop up whenever someone tries to suppress it. To use an example of a great writer I know, murder naturally has a high "cost", or punishment, because if government decided one day the penalty for murder was just $4000, people would gravitate back toward giving it a high cost: the friends of anyone killed would pool their money together and find out who did it, and "enforce" a more natural penalty on him, taking advantage of the new, artificial penalty.

The writer I referred to above is none other than Bob Murphy, author of the new, groundbreaking book Chaos Theory, which seems to propose something quite unnatural. To understand why, it is first necessary to summarize chapter one, which details a possible market solution to the provision of laws. In this system, Murphy explains, property owners would not allow anyone on their property unless such visitors pledged to compensate the appropriate people for any harm they caused. This would mean promising several million dollars for murder in most cases. In order to make such a promise, then, everyone would buy contract insurance, which would pay the fines, similar to how people currently buy car insurance.

Such a system, however, is unnatural in that it fails to recognize the nature of insurance. As Hoppe argues, something is insurable only if the insured has little to no control over the loss or degradation of what he is insuring. To understand this, recall the basic rule of insurance: you're betting you'll suffer a loss, they're betting you won't. The necessary condition for an insurance transaction, then, is that the insured perceives a greater risk than the insurer. In Murphy's system of insurance, actuaries calculate the chance that someone will intentionally commit a crime (like murder, which will come to something like one in a million). However, since the insured act requires intent, almost all people will quickly realize that they have a zero chance of committing murder (they have 100% control over it). Thus, the crucial ingredient for insurance is missing: no one's going to pay to insure against something they know won't happen. And even more striking, anyone who wasn't sure he would refrain from murder (that is, who was willing to buy the insurance) would be immediately recognized as criminal and refused entry to anyone's property!

So what then, is natural to occur if society were in one moment under Murphy's arrangement? Astute customers of insurance companies would realize the rip-off. Since they know they're not going to commit murder, they can easily pledge everything they own (their lives) as collateral for a promise not to commit murder. To see why, imagine receiving the following offer: if you jump within two seconds after accepting this agreement, you get $1 million. If you don't jump in place, you are executed. (Assume this offer isn't rigged so that if you do jump, something horrible happens to you.) You can easily accept this offer because you know (are 100% sure) you will jump after accepting the offer, and have complete control over it, even though the penalty for not jumping is death. Replace "jump" with "refrain from murder" and "$1 million" with "the privilege of entering the property of others." To understand the superiority of offering your life as collateral, to paying for insurance, let us amend the example. Say instead you are offered your choice of that offer or this one: "You must pay $10,000 up front to choose this option. Instead of the death penalty for not jumping, the penalty is five years in a resort prison." Would you choose the first alternative or the second? If you want to maximize both your life span and your income, you can safely choose the first, since, remember, you have complete control over whether you jump.

But would property owners really consent to the entry of people who promised their own executions rather than paying $10 million for murder? Before I answer, consider that critics of anarchist monetary victim compensation always point out that the family of a murder victim will surely be more interested in seeing that "justice is served" than in money, the acceptance of which implies some finite "value" of the deceased. More generally, however, who promises to accept a greater punishment in the case he commits murder (and thus, has less incentive): the person who will spend 15 years in a cushy prison (since under Murphy's system, people would be able to shop around, and leave prison when some company decided they were no longer a big risk), or the person who will be executed? The person promising his own life has much more to lose, and thus provides more assurance. I can't guarantee that in a stateless society, people would prefer such a system, but neither can Murphy guarantee what value tradeoffs property owners will make in the absence of government; nevertheless, that the system I suggested provides greater assurance that visitors won't kill people, it seems all the more … natural.

Indeed, some may refuse to agree to a death penalty, but such people could agree to a life-in-prison working for the victim instead. In any case, which horrid punishment they promise on themselves would be dependent upon the seriousness of the crime, not on an insurance company's perception of their likelihood of committing future crimes. The point is, no one would pay to insure something that's not going to happen, and would gladly substitute a promise that would never harm them for a tangible monthly payment. (This is not to say there wouldn't be some monetary compensation on top of the punitive requirement.)

Gun Control

The above critique also forms the basis for a common complaint from many anarchists about the gun control position, who balked at the idea that they wouldn't be allowed to own bazookas, and would have to pay extra for owning a sawed-off shotgun. However, if I'm agreeing to pay $10 million if you commit a crime, then of course I won't let you buy bazookas. But such a complaint by the gun owner is still valid in that it underscores the above critique: insuring intent is unprofitable from the insurer's side as well. Just as an insurance customer would reject the idea of having to pay for something he knows he'll never use, the insurer would reject the idea of having to take responsibility for another's intentional misbehavior. The risk of another person murdering you is insurable; the risk of your murder of another is not. A gun owner, then, would never be in a position for someone to regulate what kinds of guns he has, simply because the kind of insurance that would regulate it could not exist.

We thus see that the only workable system of insurance against intentional misbehavior is the straightforward type (insuring against the actions of others to you), rather than Murphy's reverse insurance. In fact, it is almost perplexing that in the second essay he predicts that this exact insurance (the straightforward type) would provide the protection against people from outside the anarchist society. If it's feasible to prevent violation of my rights by foreigners through this method, why is it also not feasible against other members of the anarchist society, since they too are foreigners insofar as they live where they can make their own laws?

Car Insurance

But what about car insurance? Since auto liability insurance has basically the form of Murphy's insurance, why is it feasible? The answer is, it's not. Or rather, most kinds aren't. Insurance, as shown above, cannot cover intentional behavior, but it can cover mistakes made in good faith. Excessively drunk driving, going 30 mph above drivers around you, failing to yield the right of way, ignoring stoplights: these things would not be insurable, since they involve a conscious decision on the part of the driver. Further, since liability insurance is mandatory, it is, by no accident, very expensive, as uninsurable things typically are.

Wouldn't people still buy car liability insurance like it exists today were it not mandatory, since in some cases it's a good deal? Actually, in a world in which car insurance was not mandatory, anyone wishing to insure against "the chance that I might for some reason get dead drunk and behind the wheel" could not find insurance. It is only because everyone must buy insurance that rates, as high as they are, are lower then what they would otherwise be, since they snag everyone regardless of risk. In a world in which the careful would not want to insure against reckless driving, the market would wither away, leaving dangerous drivers holding a very large bag. Interestingly, even an advisor for Chaos Theory was able to recognize the futility of auto liability insurance.

Do not let this review, of course, lead you to believe I find no worth in Chaos Theory. Quite the opposite! The disagreement I have with the type of insurance proposed in the first chapter is less significant than it seems. The general structure of the society Murphy proposes makes perfect sense: yes, property owners would demand a sort of agreement from visitors to compensate for wrongs they commit. Yes, there would probably be an agency to back the credentials of an individual. Yes, those who violate those agreements would suffer some punishment combined with a type of exclusion from society. I merely do not think it would take the form of a type of reverse insurance, where someone else agrees to pay the full exorbitant damages for your intentional actions.

June 28, 2002 

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