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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Comments • 2 390

  • Vipul Petkar
    Vipul Petkar  3 hours back

    7:58

    • Vipul Petkar
      Vipul Petkar  3 hours back

      7:58

      • Jack L
        Jack L  3 days back

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

        • NightCrawller
          NightCrawller  3 days back

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

          • Markus Poremba
            Markus Poremba  3 days 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  3 days 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  4 days back

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

                • imperatoreTomas
                  imperatoreTomas  5 days 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  7 days 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  1 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  1 weeks back

                        Insurance works because it’s law

                        • JayBaddAssCutler
                          JayBaddAssCutler  1 weeks back

                          CHICAGO HEIGHTS?!?!?

                          I went to school at Marian Catholic in the Heights

                          • Lord Zizumias
                            Lord Zizumias  1 weeks back

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

                            • JoelJames2
                              JoelJames2  1 weeks back

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

                              • Mahad Omar
                                Mahad Omar  1 weeks back

                                Plot twist he acutally kills them

                            • Nub Lord
                              Nub Lord  1 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  1 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  2 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  2 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  2 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  2 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  3 weeks back

                                          The true magic is to win constantly while gambling.

                                          • TheEpicFuzz
                                            TheEpicFuzz  3 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  3 weeks back

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

                                              • jvgama
                                                jvgama  3 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  3 weeks back

                                                  Behavioral economics are a bitch

                                                  • YEdwardP
                                                    YEdwardP  3 weeks back

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

                                                    • redda2
                                                      redda2  3 weeks back

                                                      This is why micro transactions exist in games...

                                                      • tyler89557
                                                        tyler89557  3 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  3 weeks back

                                                          I would go always 100% chance in the viedeo

                                                          • Victor Hugo
                                                            Victor Hugo  3 weeks 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  4 weeks back

                                                              The house always wins

                                                              • Dominic Mosimann
                                                                Dominic Mosimann  4 weeks 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  4 weeks 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  4 weeks 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

                                                                          • brian marshall
                                                                            brian marshall  1 months back

                                                                            this video states odds of 200/1 gives you 300 back for every dollar bet. but its actually only 201. i wouldnt want to be the videos author if im paying out 50% above the odds.

                                                                            • Andrew Kaplan
                                                                              Andrew Kaplan  1 months back

                                                                              5 dollars is equally to a 5 percent chance of 100 only if the bet is done multiple times. The whole point is it's a one time thing

                                                                              • Allan Peda
                                                                                Allan Peda  1 months back

                                                                                I rarely downvote, but this simplification of insurance is nonsense. If my losses could destroy me, removing my ability to meet the opportunity costs for recovering, but the premiums are manageable, then the insurance is worthwhile. Only the wealthiest entities (such as New York City) can self insure.

                                                                                • sportsMike87
                                                                                  sportsMike87  1 months back

                                                                                  Will aviation be wrapped in this video somehow

                                                                                  • bhaskar varma
                                                                                    bhaskar varma  1 months back

                                                                                    Good going

                                                                                    • Lewis Johnson
                                                                                      Lewis Johnson  1 months back

                                                                                      Money market funds and mutual funds are where it’s at. Don’t fool with savings accounts

                                                                                      • Corey Liddil
                                                                                        Corey Liddil  1 months back

                                                                                        "Finally a video without planes!"
                                                                                        *7:30*
                                                                                        "Oh, God dammit!"

                                                                                        • The Mastar
                                                                                          The Mastar  1 months back

                                                                                          Let's not forget that the odds for winning the lottery jackpot is around 1 in 45 million, and if you buy 2 tickets, the odds become around 1 in 22.5 million, for a small price. so people are more likely to buy 2 tickets.

                                                                                          • Daniel V
                                                                                            Daniel V  1 months back

                                                                                            You've got it wrong. First, for the Powerball and Mega Millions, odds are more like 1 in 200 million. And you dont get 1 in 100 million odds if you get 2 tickets. Otherwise everyone would buy a handful of tickets.

                                                                                            One ticket gives you one set of numbers that win. And (ballpark figure) 199,999,999 sets that dont win. To begin, just BEGIN, to improve your odds by buying tickets en masse, you'd need to buy hundreds and hundreds of separate sets of numbers.

                                                                                        • NoobPilot831
                                                                                          NoobPilot831  1 months back

                                                                                          Expanding everything to infinity is not reality, so why talk with in terms of it.

                                                                                          • Leo Barlach
                                                                                            Leo Barlach  1 months back

                                                                                            I don't think the $5 example works. There's value to reducing risk. It is completely rational to prefer the lower risk, all else equal.

                                                                                            The more risk, the bigger the required payoff.

                                                                                            • Daniel V
                                                                                              Daniel V  1 months back

                                                                                              An argument can be made that it is irrational to be dead set on the certain $5 as opposed to the slightly smaller chance at a slightly larger amount. They have the same monetary value.

                                                                                          • lonelyPorterCH
                                                                                            lonelyPorterCH  1 months back

                                                                                            I was in a casino once, just for fun

                                                                                            I won about 150 CHF^^

                                                                                            But this was the first and only time, I went to a casino^^