The Magic Economics of Gambling

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  • Published: 30 October 2018
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    References:
    [1] statista.com/statistics/253416/global-gambling-market-gross-win/
    [2] annualreports.com/HostedData/AnnualReports/PDF/NYSE_MET_2017.pdf
    [3] twitter.com/wendoverpro/status/1054533498722111488
    [4] nber.org/papers/w18237.pdf
    [5] twitter.com/wendoverpro/status/1054533837328281600
    [6] twitter.com/wendoverpro/status/1054534236642795522
    [7] its.caltech.edu/~snowberg/papers/Snowberg-Wolfers%20Risk%20Love%20or%20Decision%20Weights-NBER.pdf
    [8] football-data.co.uk/blog/favourite_longshot_bias_tennis.php
    [9] economix.blogs.nytimes.com/2010/06/02/the-bp-spill-and-the-favorite-longshot-bias/
    [10] ac-els-cdn-com.ezproxy1.library.usyd.edu.au/S0167268114002194/1-s2.0-S0167268114002194-main.pdf?_tid=6aac86b2-7e4a-46d0-bf4d-5ab70e8db750&acdnat=1540355242_b9bcf6d0549207112968a3467b39a9a0
    [11] hbs.edu/faculty/Publication%20Files/08-061_17c22e32-fe06-4b4a-8b5e-e09227fc8104.pdf
    [12] commissions.leg.state.mn.us/ladder/120511prizelinkedsavingsFAQs.pdf

    Animation by Josh Sherrington
    Sound by Graham Haerther (Haerther.net)
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    Select footage courtesy the AP Archive

Comments • 2 403

  • 本刀にهُنْطُ نِクスノギ کُسُنُگِ

    gambling should be banned 100% and the government should shut down all the casinos

    why?

    1. it exploits the poor for money
    2. the profits from casinos do not generate any material wealth

    • xMacieX
      xMacieX  19 hours back

      The 80% option doesn't only come with a "chance of loss", depending on the number of tries you are able to take for example 1 try you have 20% to loose everything and end up with 0$ instead. Even if you are unlcuky because of the nature of the probability there is a certain random factor involved and if you are unlucky this certainly happens because you can't ramp up the sample size to infinty when applying this to reality. So optiopns considering probability are not "woth the exact same". Only if you are able to run enough cycles you are able to achieve these results due to the law of large numbers. Since this doesn't usually apply for many ppl it is totally reasonable to pick the 100% chance chance choice over the other.

      • iceshadows911
        iceshadows911  2 days back

        I think your study lead you to make a bad premise where the gambled $6.25 is equal to $5. Winning a prize happens only once, and cannot be averaged out over time and therefore it's obvious these two choices aren't equal. One is either $6.25 or $0 and the other is always $5.

        • Jacob Larsen
          Jacob Larsen  2 days back

          If you can swing the advantage to you favor $100 bet with a 1% edge is worth $1 per bet and the longer you play the more you win it's that easy folks just gain the edge over the house and play a lot to win the same way the casino does

          • marek m
            marek m  2 days back

            The horse racing gamble is wrong i think. With 2:1 odds you win $2 for every $1 you bet. So if you win, you get $2 plus your original $1 back...so $3. If you bet 200:1. If you win you get $200 plus your original $1... so $201, not $300. Come on guys, are you or are you not degenerate gamblers who should know this?

            • 3 Subscribers Without Any Videos!!!!!

              Fml hes right.. the moment i went from euro table to american i lost everything

              • infinitecanadian
                infinitecanadian  3 days back

                Gambling is such a waste of time and money. I don't know why anyone would gamble.

                • Asbjørn Olsen
                  Asbjørn Olsen  4 days back

                  Well, there is also the entertainment factor - people think gambling is fun, and maybe they're okay with paying for that through gambling.

                  • eSwatini
                    eSwatini  6 days back

                    Haven't watched the video but I'm going to assume that he puts planes into this somehow

                    • Brandon Guerrero
                      Brandon Guerrero  6 days back

                      Sometimes gambling is pure magic especially when you win good money.

                      • Redallstar1
                        Redallstar1  1 weeks back

                        FOMO explained.

                        • Vipul Petkar
                          Vipul Petkar  1 weeks back

                          7:58

                          • Vipul Petkar
                            Vipul Petkar  1 weeks back

                            7:58

                            • Jack L
                              Jack L  1 weeks back

                              Those polls only show that most people don't understand basic statistics

                              • NightCrawller
                                NightCrawller  1 weeks back

                                Did not understand the tennis example, if anyone can elaborate.

                                • Markus Poremba
                                  Markus Poremba  1 weeks back

                                  u miss one important fact: when i have the chance to win 100Dollars with an input of 5 then i hope that i get these 100 dollars faster than spending 100 Dollars

                                  • Libertad o muerte
                                    Libertad o muerte  2 weeks back

                                    I have a gambling problem the sad part about it is that i have 120 iq and I already have watched this video thrice
                                    Is really hard to fight this things

                                    • DeeZanic
                                      DeeZanic  2 weeks back

                                      So if I win the lottery I should be afraid of dying of terrorism?

                                      • imperatoreTomas
                                        imperatoreTomas  2 weeks back

                                        This totally fails to explain tail risk. Tail risk of death or baskrupcy is “more expensive” to buy because if it happens you’re out of business for good. Don’t believe me? Google why put options are “overpriced” and you will see it’s because this downward tailrisk is actually correctly priced and that there is a value to not dying no matter the “risk”

                                        • Spastik
                                          Spastik  2 weeks back

                                          I gambled once in my life. My dad gave me $50 to gamble as a "lesson" to show its a waste of money. I was down to $10 and feeling bad about it and then I won $394. Im never gambling again.

                                          • Adrian Rutkiewicz
                                            Adrian Rutkiewicz  2 weeks back

                                            100% for getting X is not 25% for getting X*4. Maybe it is mathematically, but not practically. The first option is surety, while the other is a chance of getting 4 times more 1/4 of the time, which in practical terms may mean never. Get a 100 sided die, throw it 100 times and look a the distribution. Chances are that there will be results that occur multiple times and such that do not occur at all. So yeah, 100% for getting X is the same as 100% for getting X*4 every fourth time.

                                            • comic215
                                              comic215  2 weeks back

                                              Insurance works because it’s law

                                              • JayBaddAssCutler
                                                JayBaddAssCutler  2 weeks back

                                                CHICAGO HEIGHTS?!?!?

                                                I went to school at Marian Catholic in the Heights

                                                • Lord Zizumias
                                                  Lord Zizumias  2 weeks back

                                                  I mean I wouldn't have insurance if I wasn't forced to by law.

                                                  • JoelJames2
                                                    JoelJames2  2 weeks back

                                                    10:44 Why does that guy look like he is going to murder them?

                                                    • Mahad Omar
                                                      Mahad Omar  2 weeks back

                                                      Plot twist he acutally kills them

                                                  • Nub Lord
                                                    Nub Lord  2 weeks back

                                                    I personally would always take the $5 even if you have me a chance to win a thousand dollars. I just really hate probability

                                                    • J W
                                                      J W  2 weeks back

                                                      I will teach anyone the secrets of making money gambling if they deposit 4 dollars worth of bitcoins into my bitcoin walllet. Im dead serious. I will hold your hand the whole way. something unfortunate happened to me that depleted my bitcoin account. I just need one adventurous stranger to help me out.

                                                      • thomasm1964
                                                        thomasm1964  3 weeks back

                                                        I don't know how it works in the US but, here in Europe, vehicle insurance is not a voluntary option. If you want to drive a car on public roads, then you have to buy insurance. It's nothing to do with me making a intelligent choice about whether insurance is an economically viable gamble: it's the law!

                                                        • Ricky
                                                          Ricky  3 weeks back

                                                          I'm not sure what your saying about the 80% of 6.25 = 5.00. Are we talking about a series of one-off rolls of a ten-sided dice in which the outcome isn't effected by previous outcomes? Say you need numbers 1-8 to win 6.25 and numbers 9-10 yield you 0. And say you roll the dice 20 times in row and every roll you get between 1-8, the next roll is still in your favor as you would still have an 80% chance of rolling between 1-8 because it is not effected by previous outcomes.

                                                          • BrokenSymetry
                                                            BrokenSymetry  3 weeks back

                                                            The reason why car insurance works is because you don't want risk going completely broke due to potential car accident expenses every time you drive a car

                                                            • Rhami Zeini
                                                              Rhami Zeini  3 weeks back

                                                              Would you rather have 6.25 at an 80% chance? Or get $5 guaranteed and not get arrested and have your car impounded by the government

                                                              • Marcus Killian
                                                                Marcus Killian  4 weeks back

                                                                The true magic is to win constantly while gambling.

                                                                • TheEpicFuzz
                                                                  TheEpicFuzz  4 weeks back

                                                                  One big problem with this video
                                                                  You keep saying "if you took this deal infinite times", yet if this ever were to happen it wouldn't, it would be once, and that's how the general amount of people would think

                                                                  • Nadezhda Khlevnaya
                                                                    Nadezhda Khlevnaya  4 weeks back

                                                                    I like this service, I often take a loan here
                                                                    https://primetimeadvance.com/?cguid=396039e8-9bcb-4d7f-b17c-a05513760d6d

                                                                    • jvgama
                                                                      jvgama  4 weeks back

                                                                      I very much liked the video, but there is a small mistake in it.

                                                                      The two "behavioral" features mentioned are indeed necessary to explain lotteries. Conventional economics does not explain those.

                                                                      But rational agents may use insurances and the insurance business may be explained in a conventional economics framework. This is because a rational agent does not need to be risk neutral. In fact most agents are risk-averse and this is not a "behavioral" feature. A rational agent with consistent preferences may prefer $10 100% of the time to 30$ 50% of the time, there is no contradiction. That is why, regarding assets and investments, riskier assets are more profitable than safer assets. A "utility function" is compatible with those choices and they are "classic/conventional" economics.

                                                                      Lotteries are not explained in this way, because if agents were consistent and risk-loving (instead of risk-averse, like most people are) they would go to the stock market and "gamble" in the riskier assets - where you are payed (in expectation) to have a risky behavior - instead of going to the casino - where you pay (in expectation) to have a risky behavior.

                                                                      In a world of risk-averse agents insurances make sense, but in that same world - where you are payed if you are willing to have risky decisions - paying to do so does not make sense. And therefore, only agents who behave in an inconsistent/irrational manner make casinos and lotteries work. And one may explain that using "prospect theory" (loss aversion, etc.) like you did in this video.

                                                                      • Louis Tournay
                                                                        Louis Tournay  4 weeks back

                                                                        Behavioral economics are a bitch

                                                                        • YEdwardP
                                                                          YEdwardP  4 weeks back

                                                                          I remember a quote that went somewhat along the lines of "the lottery is a tax on the statistically illiterate."

                                                                          • redda2
                                                                            redda2  4 weeks back

                                                                            This is why micro transactions exist in games...

                                                                            • tyler89557
                                                                              tyler89557  4 weeks back

                                                                              I'd rather have a normal savings account tbh because then I can get away with doing less work to figure out its interest rate.

                                                                              • Nerva xD
                                                                                Nerva xD  4 weeks back

                                                                                I would go always 100% chance in the viedeo

                                                                                • Victor Hugo
                                                                                  Victor Hugo  1 months back

                                                                                  Insurance companies screw you over. Expensive premiums and on top of that you still have to pay a deductible or co-pay

                                                                                  • likaboss7654
                                                                                    likaboss7654  1 months back

                                                                                    The house always wins

                                                                                    • Dominic Mosimann
                                                                                      Dominic Mosimann  1 months back

                                                                                      The point that the fear of loss is stronger than the promise of gain, is also the reason why religions work.

                                                                                      • Petar Dambovaliev
                                                                                        Petar Dambovaliev  1 months back

                                                                                        The point is that people who play will never achieve average results. You need enough examples to average out stuff. One single person will never play so much to have enough to average out. On the casino's side it's averaged out because it's many to one relationship.

                                                                                        • turbiNe
                                                                                          turbiNe  1 months back

                                                                                          I think it's kind of the same thing with the chance of crashing in a airplane and the low Chance of winning it big at the casino. There's still a chance of it happening.

                                                                                          • Pety
                                                                                            Pety  1 months back

                                                                                            I like your channel so I'm a little surprised that you made a video I have so many issues with

                                                                                            0:18 - no they do not make that exact deal. They would be if something you assumed a bit later was actually true: that they had an infinite number of trials, but since that's not true your statement is illogical. On average over trillions of attempts by millions of people, people lose 5 cents on the dollar, but individuals only take a ridiculously small fraction of those attempts. The smaller the sample size the higher the variation, so people are actually betting that the variation will be in their favor.

                                                                                            1:22 - the reason people still do it is, besides the reason I mentioned earlier, because it's fun. It's entertainment, and the 5 cents on the dollar people lose on average is essentially the cost of admission for this grown-up amusement park

                                                                                            1:36 - insurance shouldn't work. At least in the form that it does. It "works" how it does in the US because not having insurance is literally a criminal offense

                                                                                            2:25 - even ignoring the first thing I said, people who want insurance don't want it to make money. They want it to prevent too much loss at any one point in time. With insurance there's only so much you're liable for until the insurance company has to pay for everything, so if you royally screw up and t bone some guy's million dollar Lamborghini, you don't have to come up with a million dollars all of a sudden and go bankrupt. Even ignoring that, people use insurance for the same reason people buy cars on payment plans despite it literally costing more money: it amortizes the cost. If something unrelated and drastic happened that cost you a lot of money, and now you lost a bunch more money to pay for some accident not covered by insurance, you could get hit with too much at a single point in time and go bankrupt as well.

                                                                                            2:42 - again, the two things are not the same, but not because of the negative effects of losing or whatever, but because there is not an infinite number of trials but instead only one. You even said at 3:13 your theory relies on an infinite number of trials, which isn't the case in the real world. How could you miss something so obvious

                                                                                            7:29 - terrible explanation. The real reason is because the amount of reporting the media does on, say, terrorism, is astronomically high in proportion to the number of people who actually die of it. With plane crashes it's the same deal, but made even worse by the fact that you're trusting your life with an extremely complex machine when you have no clue how it works

                                                                                            9:23 - this is a bit, well, petty, but this is also not true. You're losing money here due to inflation

                                                                                            • Clark Fererra
                                                                                              Clark Fererra  1 months back

                                                                                              Gambling itself is a kind of magic!

                                                                                              • Rand Barrett
                                                                                                Rand Barrett  1 months back

                                                                                                This seems to prove that people are not rational, at all