I do that too. Except without the gambling part.
Regards,
Shodan
This issue cuts close to home for me. I have a friend who gambles a lot, he will blow $200-$300 at a time. When I go to our local casino I will play the slots for a set amount say $20.00. Sometimes I win a little and will keep playing on their money, often I will come out ahead, up $50 to $100 but if I loose my initial $20 I will stop. My friend goes with the expectation that he is going to win, he is very sad when he does not and the more he looses the more he has to play to win back an ever increasing amount. In my opinion you have to play with the attitude that you are going to loose not win. Play for fun but only a set amount then stop.
I trade the financial markets for a living and hold the exact same view. Every day, my job is to find instances where I have an edge. If I don’t believe the trade offers a positive expectancy I won’t trade. If I see something that is wildly in my favor, I might feel comfortable risking everything I’ve made in the last 3-6 months. I hate casino games. It makes me sad to see people acting so irrationally and throwing their money away.
Here’s an interesting article on Jeff Yass, founder of Susquehanna Investment Group - one of the most successful groups of options market makers:
The thing is, this is based on a false calculation. People playing casino games aren’t necessarily acting irrationally. The expected value caluclation most people do doesn’t include the value of the enjoyment I get from it (or the value of the free drinks etc). Bettign at casinos can be a rational act. If my expected loss in three hours playing Blackjack is less than the cost of an equally pleasurable activity for those three hours, it is rational for me to play Blackjack.
Similarly, I always hear that playing the lottery is dumb. It can be, but it also can be fundamentally rational. A dollar, or even five dollars lost makes zero impact on my life. But it purchases me a few days of dreaming about quitting my job. Worth well more than the cost of the ticket. Hence a rational investment.
Granted.
I was referring to it being irrational in a purely monetary sense.
Slots, on the other hand, are an aspect of gambling I don’t get. There’s no gameplay to it. With other casino games, the gambler does have some control over the course of the game, even if the odds are against him.
But calling it irrational in a purely monetary sense is meaningless. Even if we do look in a pure monetary manner, it shows the weaknesses of expected value analysis.
Take a lottery, where I can buy a $1 ticket with a 1 in 500,000,000 chance of winning $300,000,000. Even if there is no utility from ‘playing’ outside of the expected value of the ticket, it is still in some situations a rational decision.
The thing is, a dollar to me is meaningless essentially. The value of $300,000,000 is significantly more than the 300,000,000 times the value of $1. A lottery which gives me odds of 1 in 200 for a $1 stake of winning $100 wouldn’t be “rational” in the same way for me - $100 is, to me, worth approximately the same as 100 times $1. But once we get up to numbers that can alter my life, then the mathmatical calculation doesn’t hold.
Unless you have had your last fiver riding on the roll of a die, the turn of a card, or the the placing of a horse, you haven’t lived.
Like spending time in jail, everyone should do it once, just to feel the range of emotions it evokes.
Over time, taking that bet would make you go broke.
Over time, the guy offering that bet will make money and you will go broke. The effect that winning would have on your life doesn’t matter to him.
No I wouldn’t. I’d lose money over time, but I won’t go broke. You see, I earn money as well as spend it. And the world isn’t made up of infinitely repeating games. Spending $1 twice a week for the rest of my life won’t make any noticeable difference to my lifestyle (presuming my situation does not change).
The point is, money doesn’t have a single immutable value. Which is why “expected value” analysis of many things is utter bull, even if we assume people are rational actors, which they clearly aren’t.
So you are basically arguing that accepting a money-losing bet a couple of times won’t ruin your life. I agree. I’m saying that effect isn’t really the issue here. I’m saying taking a simple bet with negative expected value is a poor choice, *assuming the goal is to increase your personal net worth.
*
Doesn’t that also explain why professional poker players/traders are able to make a living? The rational players take money from the irrational players. $10,000 is worth exactly 10 times $1,000. It doesn’t matter to the guy with the math on his side why the other guy chooses to disregard probability and statistics or what the other’s situation in life is.
And even under that assumption, it is not a poor choice. Again, you are laboring under the assumption that $300,000,000 is “worth” exactly 300,000,000 times $1. That is only true on a completely facile level.
It also ignores the possibility of second best solutions and restrictions on choices. If a person is in a situation where they have $100 to their name, and require $10,000 for an operation to save their life, gambling the $100 on a negative expected value bet is a rational choice, however bad the odds are.
For me, in my current situation, $10,000 is worth pretty much exactly 10 times $1,000. And while you are right that it doesn’t matter to the guy with probability on his side what the others situation is, we are looking at the rationality of the person making the negative expected value bet. Once you get outside the (false) constraints of your analysis, it can be rational both for the person placing the bet and the person taking the bet.
Winning “too much” isn’t against any casinos rule AFAIK. You can win a million dollars at roulette and nobody will stop you from playing (they might check the wheel, the staff and your betting strategy). If you win a million playing BJ they will investigate to find whether you’re counting. If they think you are, you will be barred.
And I know it is legal to count cards, which is why I said it isn’t allowed (which is true) rather than “it’s illegal” (which is false).
Stock trading has many simmilarities to poker as far as I know, but I’m not comfortable making any statements about trading since my knowledge is very limited. But at least on the surface, it is very simmilar. The main difference isn’t stock vs cards IMO but rather the fact that trading does not have an inherent negative-sum structure. In trading, everyone can (theoretically) make a profit at a single instant of time (all stocks go up) but in poker, you can only win as much as the opponent(s) lose, minus the rake.
Depends on the rate you’re paying out. If you blow your entire paycheck from McDonalds on lotto tickets, yes. If you buy a single ticket a week on your stockbroker salary, no.
One aspect of gambling that’s not yet been addressed are the situations in which a wager makes some other activity more entertaining. For example, our annual trip to south Florida always includes at least one evening of jai alai. It’s a fun enough game to watch, but the fact that you can gamble on the outcome makes the entire experience more enjoyable. It gives you a player to cheer for and adds an element of excitement when your guy is doing well.
Super Bowl pools also come to mind as an example of this added benefit. How many people out there only watch the big game to see if their square is a winner (and for the commercials, of course)?
I’m not sure I understand under what conditions $1,000,000 does not equal ($1 * 1,000,000). I gather that your definition of “worth” is where I’m confused.
Say I have mastered the game of checkers to the point where I can play either to a stalemate or a win every time. I have the “solved” the game. Imagine I get captured by an evil madman with low self-esteem who wants to play checkers. In this situation it is in my best interest to let him win so he doesn’t kill me. That is a rational choice. However, it doesn’t any effect on what the rational moves are within the game.
I seem to be arguing more from a “within the game” point of view (it is irrational to take a risk with negative expected value). And you’re coming at it from a situational point of view (if you really, really need the money and have no other options, then it makes sense to gamble).
I’m not sure if we really have much of a disagreement. Though, it seems more useful to me when talking about whether gambling is rational or not to start with the least amount of external factors.
I can see your point. But when talking about rational behavior when it comes to gambling, I’d expect that most people aren’t at the end of their ropes, desperate for cash.
The stock market is not zero sum, but futures and options markets are. For every speculator that makes $1,000,000 speculating in oil/corn/soybean futures, another loses that amount. This fact is usually overlooked during the “burn the speculators” rants that appear in the media every so often. The “rake” also exists in the commissions that brokers and exchanges charge to make the trades.
The marginal utility of money is not constant. In particular, there is tremendous emergent value in hitting a certain threshold of money that is life-changing.
It’s the same reason that purchasing insurance (paying a small downside to eliminate a small risk of a large downside) is rational, even though the expected value is negative. Playing the lottery is paying a small downside to add a small chance of a large upside. The small downside can be easily absorbed into one’s current economic state, while the potential large swings are paradigm-shifting.
Looked at another way, it’s because we’re risk-averse and dealing with a small enough sample size (lifespan) that significant deviation from the mean is likely.
Would I take a 51% chance to bet a dollar and win 2? Sure, I guess, but I’d be bored by it.
Would I take a 51% chance to bet $100,000 and win $200,000? Hell no. It would wipe me out if I lose.
Would I take a 0.00000051% chance to bet a dollar and win $2 million? That sounds like fun.
All three bets have the same expected value (per dollar bet). But they absolutely don’t have the same expected utility. It turns out that the utility of the last bet has a lot more to do with the $2 million payoff than it does with the chance of winning. You can make the odds much worse, and people will still happily (and rationally!) play the last bet, just because $2 million is so much, and $1 is so little.
Exactly, iamthewalrus(:3=. Expected value analysis simply doesn’t work, even if we presume ‘rational’ behavior.