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Gambling (Against the Gods)

Gambling

Human beings have always been infatuated with gambling because it puts us head-to-head against the fates, with no holds barred.

We enter this battle because we think Lady Luck is on our side. Adam Smith explained the motivation: “The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.” Smith knew that risk taking propelled economic progress, but he feared what would happen when this propensity went too far.

That is why he wrote The Theory of Moral Sentiments, to balance against the benefits he of the free market that he argued for in The Wealth of Nations. Keynes agreed 160 years later, “When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done.”

But the world would be dull if no one had conceit and confidence in their own abilities and good luck. Keynes knew that without boldness, no one would ever take a risk because of cold calculation. Nobody takes a risk when they think they’re going to fail. The Soviets tried to take uncertainty out of existence with government planning, they killed off social and economic progress.

We have been enthralled by gambling for millennia. And it is not dependent on economic class – both the rich and poor take part in it. Pontius Pilate’s soldiers cast lots for Christ’s robe as he suffered on the Cross. Marcus Aurelius, the Roman Emperor, was accompanied by his personal croupier. And the Earl of Sandwich invented the snack that bears his name because he needed something to eat without leaving the gambling table.

The most dominant factor in gambling is time. Risk and time are opposite sides of the same coin. If there was no tomorrow, there would be no risk. Time is most important when decisions are irreversible. If you buy a stock today, you can sell it tomorrow, but what would you do after the croupier at the roulette tables tells you, “No more bets!”

Should you refrain from acting in the hope that time will shift the probabilities in your favor? Hamlet complained that too much hesitation under uncertainty is bad, because overdeliberation will ruin spontaneity, but once you act, you forfeit the option of waiting until new information comes along. Not acting has value, and the more uncertain the outcome, the higher the value of procrastination.

The growth of trade transformed the principles of gambling into wealth creation, and the inevitable result was capitalism (the epitome of risk-taking). But capitalism could not have thrived without two innovations that had been unnecessary up until that point. The first was bookkeeping, a humble activity that encouraged the spread of the new techniques of numbering and counting. The second was forecasting, a much less humble and more difficult activity that connects risk-taking with profit.

Pascal’s Wager

We sometimes make decisions based on experience, on experiments we or others have made. But we cannot conduct experiments to prove the existence or absence of God. The only alternative is to explore the future consequences of believing in God or rejecting God. We cannot ignore the issue, since by merely living, we are forced to play the game.

Pascal explained that you could not decide to believe in God. You either believe or you don’t. The decision is whether you want to act in a way that will lead to believing in God – such as living with pious people. The person who lives this way is betting that God is. The person who can’t be bothered is betting that God is not.

Monte del Paschi

Farmers used insurance because they were so dependent on nature. Their fortunes were affected by many factors outside their control like drought or flood.

In Italy, farmers created agricultural cooperatives to insure each other against bad weather. The Monte del Paschi, which became one of the largest banks in Italy, was an intermediary for these arrangements. Similar arrangements exist today in developing countries that are highly dependent on agriculture.

The insurance process works this way. Insurance companies use premiums paid by people who have not lost something, to pay off people who have. The same is true for casinos, which pay off winners from the pot that is replenished by the loser. Because insurance companies and casinos are anonymous, the exchange is less visible. Yet the most intricate insurance and gambling schemes are merely variations on what Monte del Paschi did.

"Silence is the best expression of scorn" - G.B. Shaw

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