Natural Disaster Insurance: Realism vs. Happiness

Peter's Pleasure Principle... "What would you do right now if you learned that you were going to die in ten minutes? ... Hard to say, of course, but it's a pretty safe bet that few of them are things you actually did today." Oops. That's Daniel Gilbert writing in his engaging new book, Stumbling on Happiness.

Now here's an easier (hopefully unrelated!) question. Should I buy earthquake insurance? Yes, even with the hoopla surrounding the one hundredth anniversary of the 1906 San Francisco Earthquake (see Dispatches, April 18 and 20, 2006), I still have not made a decision.

A homeowner's earthquake policy will cost me between $1,199 (25% deductible) and $1,998 (10% deductible). I presume this high premium is because our house is located close to a tidal estuary of San Francisco Bay, an area subject to "soil liquefaction."

Wikipedia defines the process of soil liquefaction as follows: "The shock of earthquake waves can cause water-saturated soil to rearrange itself in such a way that it essentially becomes a suspension of solids in the liquid." Uh-oh.

Sounds bad. When I first heard the concept, I was unhappy. But then I thought of the hundreds of thousands of other Californians stuck, so to speak, in the same boat(!), and I relaxed. Can we all be crazy?

OK, this is not realistic thinking. But at least I know why I feel this way. As Gilbert writes, "Because most of us get so much more practice imagining good rather than bad events, we tend to overestimate the likelihood that good events will actually happen to us, which leads us to be unrealistically optimistic about our futures."

So should I buy earthquake insurance? Do Dispatch readers carry similar disaster insurance? Does it make you happy?

-- Peter Pike