The Magic Economics of Gambling
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- Опубліковано 29 жов 2018
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References:
[1] www.statista.com/statistics/2...
[2] www.annualreports.com/HostedDa...
[3] / 1054533498722111488
[4] www.nber.org/papers/w18237.pdf
[5] / 1054533837328281600
[6] / 1054534236642795522
[7] www.its.caltech.edu/~snowberg/...
[8] www.football-data.co.uk/blog/f...
[9] economix.blogs.nytimes.com/20...
[10] ac-els-cdn-com.ezproxy1.libra...
[11] www.hbs.edu/faculty/Publicati...
[12] www.commissions.leg.state.mn....
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The only thing about gambling my statistics teacher ever said was "the longer you play, the more your winnings tend to negative infinity. If you win something, get up and leave"
Your teacher should have taught you to sit at the one-armed bandit till you scored 3 free cocktails. Then you leave, no matter how much you have won or lost 🍄
The only time a got a bunch of free cocktail is when I am visiting the Venetians in Macao, didn't get the same treatment in Vegas, bloody Vegas, it starts to cheap out.
Lewis Massie They call it the gambler's ruin.
I used to work as a Dealer at a Casino. One night I was dealing and a guy won 28k on a Blackjack Table. Every smart person would take that a leave. But nope, the degenerate decided it was a great idea to continue playing, thinking he would win more. Long story short, he ended up playing it all back to the Casino. Like we say in the industry, the Casino always wins.
@@krims0n70 Lets face it, degenerate removal is possibly the only few social function casino are serving, every time I see one of these degenerate who gamble in uncontrollable and furious fashion, I wish for their quick downfall.
When it comes to the 100%/$5 vs 80%/$6.25 choice, the question kind of implies that you only get one roll of the dice, which is why most people take the sure thing.
When you pose the question, you don't say "given infinite rolls, which would you pick?"
Give me my 5 bucks infinite times. I got weed to buy nigga
Exactly what I thought.
Yup, the "infinity times" argument to make both options seem like they're equally as interesting doesn't really seem to hold up.
Exactly!
I would get rickrolled infinite times... thats what your talking about right
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 $394. Im never gambling again.
somebody beat the house big time.
@@andrewthummel3767 that 394$ came out of someone elses pocket not the house, casino's never losses money
@@Chocobohunter they still beat the house
casino’s never lose money? what about all the casinos in Atlantic City that closed? Ask Trump!
@@Chocobohunter you do realize literally every dollar came out of someone's pocket? Fucking stupid way to think about it
People picked the 100% chance to win a $5 option because you left out the part about an infinite number of tries.
Yeah, I am not sure how you multiply the chance with the amount
Either you get the money or you don't if you get the choice once
Can somebody explain this ?
Game theory is totally counterintuitive
Prabhanjan Sahoo it has to do with infinite series
Could you please explain?
@@pbj4184 if you have a 100% chance of winning 5 dollars and 25% chance of winning 20 dollars. You could just go with the first option, gamble four times and end up with 20 dollars with no chance of losing. But if you don't have infinite tries then the second choice doesn't seem all that pointless.
With truly infinite rolls, you will always be able get the maximum amount. At some point the average would be basically the max number (or infinitely close to it).
So, the question is rather "how many rolls are we talking about"?
At one single exchange the chance of no money is proportionately huge compared a sure thing. They are not worth "the same" , only "statistically the same".
Our obsession with small chance of success is weird though.
The point of buying insurance is so the government doesn't put me in jail and impound my car.
And the point of threatening you with that is so that the victim, or you, don't need to go bankrupt to pay for the damage/healthcare resulting from your inattention/lack of skill/idiocy(DUI)
@@Woffenhorst that's some circular reasoning. If you're talking about in the USA then the reason people go bankrupt over those matters to my understanding is because insurance drives up the costs of settling the ordeal.
if car insurance wasn't mandated by law then nobody would buy at the extremely over inflated prices they charge and wouldnt exist. In regards to daniel, the point of obama care was that it was an extremely nerfed attempt at what every country in the world should have. which is free at the point of use, profit free healthcare. such as the NHS. however the republican party (who love profits and lobbyists) would never allow that. Healthcare should never have profits. healthcare is a human right, not a privilege for the wealthy
@@jasonlib1996 labour of a doctor is not a right you asshole.are you for slavery or socialism?also dont compare a country with 325 million people to a country of 60 million people with different tax plans and etc.if you do that i can say gun rights are beyond questioning because the lowest crime states are new hampshire vermont and etc while california and washington have some of the highest crime despite having heavy gun control.fuck off
Correct on many aspects.
.
Governments do require one to purchase at least Liability auto insurance (where if you get in a wreck and it's your fault, the insurance pays, not you.) However, have you priced the difference between liability and full-coverage auto insurance? Liability-only is usually like 80% (est.) of the cost of full-coverage. So why is it so cheap to cover you, but so pricey to cover someone else?
.
Think about the law... insurance would be cheaper by factors if it wasn't required by law. But, because it is required, insurance companies can jack up the base prices for the stuff you're required to have, but go easy on the additional stuff (due to fiercer competition for something that is only required by a lender for a vehicle under loan/contract). There are of course other factors, naturally, but don't discount being required by law to buy something. (We saw this with Healthcare, where upon requirement by law, premiums skyrocketed for those who weren't shielded from the increases by government subsidy - why? Because you were suddenly forced to buy from them, and they knew it.)
The point of insurance is not that the loss hits us more emotionally than the gain. The point of insurance is to get rid of a significant risk, and replace it with a monthly, predictable payment, we can plan for. Also the point of insurance is that the loss when it happens can drive us into bankruptcy, so it actually has way bigger effect on our life than a comparable gain. And the third point is that we are also spreading risk not just over time, but across the population as well, so the unlucky ones actually gain on insurance, on the expense of the lucky ones.
Three reasons why insurance is good, and all three are reasonable, regardless of emotions.
Your 100% correct
You're very much correct. Wendover did mention it in passing by saying "helps smooths out economic shocks", going by the comments, it seems that line needs a lot more emphasis. There's the irrational argument Wendover analyzed that if you're just going by that, it make it sounds irrational to have insurance, but there is also very rational argument of insurance - it acts as a defense from catastrophic loss.
DarkGhost89 Yes this is entirely true. However there is more. It is not just about catastrophic loss. It is also about outsourcing risk. By having insurance, I replace an unpredictable cost with a predictable, stable monthly cost, which I can plan for. Of course this is a service I use, so it has a price, but it worth it, because it makes my life simpler and more worry free.
It might be even better financial-wise, because I don’t have to keep my assets liquid to cover unexpected costs, but I can invest more of it. Companies are doing that.
That’s true, but most times you can definitely afford to not have insurance, you can always keep some liquid savings with you, and you will make money, you can be your own insurance company, and make on average a really good return, unless you’re somehow making a better investment, your own return from being your own insurance company will always be better. It’s the same thing with buying things with cash vs. interest, I know many rich people who get loans for cars with 3% interest, but that’s because they can invest that money with a 5% return. Most of us can’t, and insurance companies approach 10% returns more often, it’s just better to be your own insurance and unless you can invest the money in a better way or get REALLY low interest to buy things with cash.
Тропинка Вальтеров Nope, it always a gamble. Any time you can get some serious illness, or an accident, when you (the insurance) company needs to pay way more than you pay in/save. So you will just eat up all your savings and go bankrupt.
Insurance doesn’t just spread rhe costs over your lifetime, but also across population.
The unlucky ones get more out of insurance than they ever pay in. And it still better to stay healthy...
On may 5th, I woke up at 5 am. I had been dreaming of the number 5 all night. I had the 5 dollar special at the diner for breakfast. I filled my car up with gas, it topped off at exactly 5 dollars. I said I have to go to the race track, it was 5 miles away. I got there at 5pm, just in time for the 5th race. I bet 5 thousand on the #5 horse.
Sure enough, she came in 5th.
freespeechisdead isdead A short, yet beautiful way to sum up gambling
lol
@@sanathrajesh5580 sounds about right
Who fills their car with $5 of gas?
@@allanshpeley4284 he said topped off
The only reason I have car insurance is I am legally required to have it for liability.
Cody'sLab first reply after 11 Months
The main issue I have with insurance is it's useless for the majority of things, and then when you need it it's not there; why am I putting money into something that I'll Never See? It would be better to have some kind of savings account for it or something
@@zdwade the lottery Is for Suckers, and Social Security is something that comes out of your check with you want it to or not.. so neither one of those things are relevant examples
Many banks offered me a low cost insurance with high covers such as 200k if I die etc but I refused coz if I really have to die I can sell my organs and earn more 😂
And you, sir, demonstrate the reason auto insurance is mandatory.
As someone who develops cost-benefit analyses incorporating behavioral economics, I'm ecstatic that you are shedding light on this topic. Perceived risks, loss aversion, transaction costs, and the interplay with psychology, cognitive science, and evolutionary biology are fascinating. I will note, however, that the foundation for insurance is more than just fear of loss. There is a distinct difference between insurance for things that you can do more than once (e.g. buy a new phone with extended warranty) vs. one-time things (e.g. life insurance) or large ticket items (e.g. home or car insurance). One cannot play the "gambling" game buying an infinite number of houses and skipping on insurance. Losing a house to fire is likely to be a financially crippling event that you cannot recover from without insurance. Similarly, you only have one life. And so you are paying to avoid loss for these infrequent, large, or one-time transactions. On the other hand, most people can probably recover from breaking a $200 phone, and will go through several phones in their lifetime. What you described in the video related to insurance is really more applicable to buying extended warranty for these kinds of smaller, repeated transactions.
Also he didn't take into account the knock on costs of even smaller but sudden losses. If someone insures their car (as in his example) they are guaranteed that they can buy a new one should they crash. If they didn't insure it, crashed and couldn't buy a new one immediately then that could cause them be unable to commute to work, or to see family, or loss of social reputation.
Having the insurance could stop a vicious cycle from starting.
@Louis Desroches Thank you, brilliant comment. He missed the point so much about this type of insurance that he almost got it backwards.
+Louis Desroches-- I was gonna say that Insurance can make economic benefit by promoting best practices as _good_ economic behavior; _i.e._ efficient safety in building design, or safer driving practices etc.... (A lot of those _stupid_ rules you see in your life, are probably an insurance company's proscribed best practice that the property-owner or business needs to implement to have lower insurance rates)
Moreover, at least some form of car insurance is mandatory in many places.
Yup. He ignores indifference curves.
We got a CGP Grey video earlier, and now we're getting a Wendover Productions video...
*MAXIMUM EDUCATION*
HAHA YUP
Newmono and Kurzgesagt announced their newest calendar
And Internet Comment Etiquette
Yeaaaahhhh!
Education +9 lol
One concept you left out is risk of ruin. If you went to a 100% payback perfectly random roulette wheel with $100 and bet $5 each spin for an infinite number of spins you would walk away with $0 every time, because at some point during that infinite number of spins you will go on a run where you are down $100. This is another way casinos make money. It is not just that they have the edge. It is also that they have virtually unlimited bankroll in relation to most players.
Yes, the whole concept of variance was left out. If two gambling options have the same expected value but different variance. Then the lower variance option is more favorable because you are more likely to survive a bad run and the bad runs won’t be as long
But with this logic there is also a change that you get infinitive money right? There are change you turn 100 euros into 1 billion
@@koerdzijlstra8513 Not really, the amount that you are up will always be finite to how ever many spins have taken place prior. The most you could be up at any given time is winning every spin up to that point. The problem is, you always still have an infinite number of spins left to perform. At some point over an infinite number of spins, you will be out of money. Every possible outcome will occur over those infinite number of spins. You could win a million times in a row, eventually you will lose a million in a row.
@@koerdzijlstra8513There is, although a €billion variance is still very small if you played 10^50 times
The oversimplification in this video results in some weird hypotheses. For instance, the reason people buy insurance is to pay, let's say $10 a month, so that when they get a $50.000 claim, they do not go bankrupt. Also, the reason it works, is because everybody chips in, and hereby the risk gets spread equally over all people. The real question should be, would you rather pay $10 a month, and get $50.000 when needed, or pay $0 per month, and pay $50.000 when needed. That's why people buy insurance ;)
Haha first reply after a year
Indeed, it is much worse to lose $50,000 than $10 a month. Likewise, nobody would take a bet where there is a 99.9% of making $1 but a 0.01% chance of losing $999- because to lose $999 is more than one thousand times worse than making $1.
Exactly -- I never buy theft insurance for my phone, because if it gets stolen I can pay cash for a new one at any time. This is basically the same as being my own insurance company. Some people need to have collision insurance for their car, because if the car was totaled, they couldn't afford to have it fixed or replace it, which would mean they'd lose their job and kick off a cascade of other effects that would take a long time to recover from. I don't need collision insurance, because I always buy cheap cars, and at any given time I could just pay cash for a new one if I needed to. But I definitely need liability insurance, because if I injured someone and they had $500k in medical bills, that would financially ruin me. Bill Gates, on the other hand, could totally afford to drive without any kind of insurance (if it weren't illegal), since he's probably richer than most insurance companies.
He does mention "economic shocks", but fails to acknowledge that that's actually the primary motivating factor for most people to buy insurance.
you wont get 50k when needed...
what he aso missed in the 5% vs 80% 6.25$ is that its just equal if you repeat it inifinite times. And as thats not possible its not the same, it gets very close over time but it starts as very unequal. And the question never stated a possible repetition, it just said you have two options choose one. There is no repetition. And so people pick the safe money and dont risk the significant amount for a small bonus.
Meanwhile in the later examples people dont consider 5$ a significant amount of money so thats not really a loss. But the option to get 1000$ and be lucky has way more gain potential so that is more interesting. It all comes down to risk vs reward. The 5$ is no big risk and the 1000$ is a great reward. These options are not equal at all. They approach equal value for many repetitions but for a single case you either get nothing, get 5 bucks or get 1000 bucks.
The odds are bad for the 1000$ but its not like someone comes around and says your odds were bad so we gonna take away the 995$ to equalize that. Statistics doesnt work that way.
I'm a behavioral economics professor. I disagree with the wording on a few things here. 1) $5 for sure and an 80% chance of winning $6.25 are not "worth the exact same amount." They have the same EXPECTED VALUE. That's not the same thing; 2) you seem to be saying loss aversion explains why people buy insurance. Loss aversion helps potentially explain it for sure, but risk aversion is enough to explain it. One need not also be loss averse. Indeed, if loss aversion applies to the big loss you are insuring against, why doesn't it apply to the insurance premium you pay for sure?; 3) risk-seeking behavior or the utility value of gambling could explain why people like roulette quite easily as well - it's not obviously totally irrational.
Nothing you're saying is wrong from an academic perspective, but what's your point? Apply behavioral economics to viewers consuming these videos.
Nerd lol
Syon came to the comments to say the exact same thing. Having the same expected value does NOT imply they are the same deal or one is objectively better. Also, the implication here that people are behaving irrationally for making this choice presupposes that their internal metric of valuation has to be long term expected value which may not be true. The results can be perfectly and rationally explained if some people optimize not for the expected value of an outcome but for minimaxity, and 100% chance of $5 is certainly the minimax optimal choice.
@Forta Leza but that's a personal preference, nothing more. It doesn't make sense from a purely math based objective standpoint. It is weird to be passionate about one option over the other when they will give you the same amount over infinite instances.
Bla bla bla and bla bla bla and more bla bla bla
It's not a difficult concept. People don't go to casinos to invest money, they go to casinos to have fun. People pay $100 and get $94.80 in return, but they ALSO get entertainment in return.
Exactly this! Its irrational to think people are going to the casino to invest money, casinos are entertainment venues.
Also known as the Classic Gambler's Excuse. People buy credit cards to earn reward points and get free money (who came up with that idea haha) but they are not looking for you "entertainment seekers", they have laid a vast fishing net to get the ones who will suck out thousand of dollars in Casino gambling and the other ones who get stuck on credit card repayments. Your theory applies to you. Not to the general public. That paradise in the middle of the desert is not built on entertainment.
@@VikasBhargava1981 Yup its pure predatory psychology. I feel that most of modern economics is predatory in nature though so w/e.
Somehow my dad goes to the casino, spends $500, eats $100 worth of food, and always comes back with at least $6,000. He knows the system...somehow.
@@austinduong-van6071 Pick one game, get really good at it, play at multiple casinos, and leave as soon as you win.
You don't make $20 on a savings account that pays 1% on a $2000 investment. You lose $40 of spending power because inflation went up by 3%.
Chris InKilleen I was thinking this too. Any return worth less than 3% per year is actually a loss disguised as a gain.
that's why you put your money in bonds or stocks.
banks are all pointless
Plus possible taxation on the 20$ profit ;). So you are even worse off.
invest in stocks or land or literally buy gold ..
While I would never say this to my friends who play the lottery, I love the old line: the lottery is a tax on people who don't understand math!
If you spend a few bucks on the lottery and you can afford it, it's fine to do.
@@roybell415 it's still a waste of that money
@@thugpug4392 here's the thing, people spend money on luxury items all the time. Personally, I buy a nice cup of coffee once or twice a week, averaging about $10 for the 2. If one of thouse weeks I decide to spend $10 on a lotto ticket instead because I find it fun to dream about changing my life overnight, who is to say one is more of a waste than the other?
@@ethanwaltz4799 you get something from the coffee. I guess if you're playing the lottery just for the experience of scratching the ticket and not to try and win it's not a waste. I'm mainly saying the lottery is not a way to make money whatsoever so as long as you're not trying to make money and that's not your motivation for buying it isn't a waste. Most people play the lottery to get rich from it though, they think even if it's unlikely maybe they'll win the prize this time. Losing will make them unhappy even if it's guaranteed they'll lose. They're wasting their money. They also don't necessarily just waste the money they were going to spend on a fancy cup of coffee. They might buy many tickets with the money they were supposed to spend on groceries or rent.
I guess you can play the lottery without wasting the money in some very specific, unlikely circumstances. I wouldn't support playing it even in those circumstances though. The lottery has destroyed the lives of people who lose and the people who win. Staying away from it is probably the safest choice.
it is not though... it is a tax on the poor who have no other hope of bettering their lives.
"Gambling is fun! You're exchanging money for fun or the possibility of more money. It's a win-win situation!" -every casino owner ever
BUT PLAAAAAANES, WHERE ARE THE *PLAAAAAAAAAAAAAAAANES?????!?!?!?!!?*
There was a plane shot in there... 7:30
kind of insider joke?
@@aetsurfer688 Wendover and several of the other educational UA-camrs put a big focus on planes and aerospace content. Probably half or more of their videos tend to focus on that topic.
Dan Iaco I KNOW *FOR THE LOVE OF PLANES AHHHHHHHHHH*
try the channel Mustard, mainly plane based and excellent production quality
As an insurance underwriter with 5 years of experience, I can safely say that insurance IS legal gambling. You're just given tools to "read the cards" (loss history, construction type, inspections, applications (that are legally binding), historical lost trend data, and our favorite "law of large numbers". With that said, the government does regulate insurers, so if we are profiting too much we are legally obligated to reduce our rates. The rate increases you see each year is due to inflation and the local experience of all risks in your local area.
Insurance is free money and the biggest scam in the history of the world
I know an actuary who told me that insurance is a rigged game on many levels. Where do you think that insurance companies get the money to loan on hotels and skyscrapers for interest?
Yeah, insurance is only a good concept if it isn't legally mandatory
@@rakshay-jain the limits you purchase are up to you though. It's rigged because idiots are a large part of the industry. Most of what you hate are the retail agents, not the insurance carriers. I'm here trying to fix MRI centers so people can get help. Youd be surprised by the number of MRI locations without Faraday shielding....
@@rakshay-jain If insurance isn't legally mandatory for some things, then what are you supposed to do when an uninsured asshole with no money in savings hits you with their car and causes you a hundred grand in hospital bills to get your injuries treated? Just eat the hundred grand loss out of your own pocket because Mr. Uninsured Asshole declares bankruptcy and gets the debt discharged, leaving you on the hook? I'd rather insurance be mandatory for the assholes of the world, because if it's not, they'll absolutely end up screwing over everyone else.
The first time I ever went to a casino I had $150 I'd decided ahead of time I was ok with losing. I first went to the blackjack table and lost $100 in three hands. Then I took my remaining $50 and went to the slots, where I promptly lost the rest in about 5-10 minutes. I remember feeling very unlucky, especially since my dad was famous in the family for being "lucky"; he always seemed to leave Vegas at least a few hundred bucks richer was the story we all grew up with. It wasn't until later in life that I realized I was the lucky one. Because my initial experience with gambling was so negative, I lost all my money before I could even enjoy one of those (at the time) free drinks that you got while gambling, I was turned off and bored and found the whole thing stupid. Consequently I've never gambled, never bought lottery tickets, and gotten to keep most of my money. My dad and my brother both had success early, which allowed them to develop a taste for the process. In the end, however, neither of them was particularly lucky in the long run as they both lost thousands of dollars over the years, with my dad nearly losing his house because of it, to say nothing of the thousands of dollars they both lost in lottery tickets. They both passed kind of young and when I was cleaning their cars for sale I found hundreds of Powerball tickets discarded on the floor of their cars. Eventually I made the connection that first experiences tend to count the most with things like that. It sets the bar of your expectations, often just about no matter what happens later. I've since won thousands from lottery tickets without ever buying a single ticket, I had several jobs where managers would buy tickets as small prizes for performance and won several times, but to this day I'm not even the slightest bit tempted to ever actually buy tickets or gamble when I go to Vegas, because emotionally I still feel what I felt the first time. More than once I've had the thought that parents should create sham casinos for their kids where the games are rigged for them to lose so that their kids first experience with gambling is negative to try and deter them from getting a taste for that life experience, but I have no idea how that would work lol.
This is truly very interesting and well written
@@muffbee2266 Ty.
My first experience of gambling was when I was 10ys old.
My step brother (a looser ) was a regular gambler on the horse's ,
I got him to put £1 on the Grand national race for me.horses name was RedRum.
I won.
Next year ,same race and the same horse was racing.I said put my money on Red-Rum again.he said it won last year so won't win again,so I picked another horse.
Red Rum won the race again.I lost my money and never gambled on a horse again
betting so high you lose 100 bucks in 3 hands of BJ is alittle crazy for a new player too tbh.
@@Tenken89 That doesn't surprise me, I suck at gambling. Ironically though I'm quite strong in math. So I can design a strategy for counting cards but couldn't use it to save my life. :)
I’m a regular in a few casinos and from what I’ve observed the “odds of winning” are irrelevant for most gamblers, they seek excitement, thrills and a reason to celebrate until dawn. To feel like the “stars have aligned just for them”, that the forces beyond our perception and control are on their side i.e to feel significant even if it’s only for a night or two. This euphoria is what hooks people and of all the addicts I personally know, not one of them are driven by a greed for wealth (though occasionally motivated by a desire to pay back taxes and to avoid prison) and now that I think deeper about it they’re basically adrenaline junkies that are unfortunately used to living “fast” and well beyond their financial means. Living every weekend like it’s literally their last one, something I don’t recommend for anyone. It’s a disease tbh that’s caused by nihilism, intense fear with a touch of insanity. But, we all gotta go sometime so why not go whilst doing the things you love to do? This is what I’m told, and I cannot find any fault in their logic lol
You're wasting your time.
its a buzz for sure
Word hence 6-5 blackjack tables being full and the new triple zero roulette
I am sick 2
Hateme 021 really? They added triple zero? Jeez
7:29 ahh there it was. Somehing with a plane in it.
If there is no plane on it we would know that CIA have brainwashed Wendover production for propaganda purpose.
It was like I heard the CinemaSins ding in my head when I saw that.
You completely missed the point on insurance.
As someone in the insurance industry most insurance companies work at a loss. They operated at a combined ratio (losses + expenditures) of ~103%. However they get the insurance money for the year up front. So they are able to invest that money and as long as they get 3% returns on the money they make profit.
Insurance companies are investment banks that get their capital from insurance premiums
Indeed, and I suspect that the proliferation of reinsurance hedge funds won't help that. It may head toward 5% for 'popular' types of long tail cover, as new entrants fight to get those reinsurance dollars. Superficially cheaper premiums, but with a greater risk of insurer insolvency.
In Portugal, there is an institution called "Holly house of Mercy", wich holds the monopoly of loteries in Portugal for 200 years. Its an huge charity that runs child care, eldery care, orphanages, food banks, etc... So, playing in the lotery can be considered charity and you dont feel guilty about spending money in it.
Interesting
so preventing exploitation and making use of the gambling addiction people have for good?
thats kinda neat
THIS IS GAMBLING PROPAGANDA DON'T FALL FOR SATAN'S TRICKS ⚠️⚠️⚠️⚠️🚨🚨🚨🚨🚨🚨🚨
@@stanleystoveSatan tricks to "lose" money to charity?
Ok but what does this have to do with planes?
check 7:31
@@MClilypad who is he and what have they done with the real wendover!!!! NO PLANES!!!!!!!
You know how many people fly into Vegas to gamble? A lot, probably including some pilots.
legit lol'd
maia eppler last video was about planes
While the "negative > positive" factor is present, people don't have the opportunity for an infinite number of trials. Particularly with hospital visits and car accidents, the number of trials is much, much less than even once a year.
Randy Saunders You still should always take the best bet possible, if you’re buying a car with 0 down and no money in your bank account, assuming you can afford it monthly, you should definitely get insurance, but as soon as you can and have some liquid savings you should get off insurance. Only other exception is healthcare in USA, since normal prices are vastly inflating to promote taking insurance, insurance is a good bet, although the free market had to be sacrificed.
“Not a plane video!” 0:00
7:32
@Dead Squid Lmao 🤣 🤣 🤣 🤣
Once an avigeek, forever an avigeek
In gambling, you generally don't have a large enough bankroll to cover the variance. Even if the odds were even in the long run, you would be broke long before the odds evened out. Also, the casinos create an atmosphere that encourages you to gamble: drinks, no clock, photos of past "winners", bright lights, etc. You never see a casino celebrating those who lose. A casino manager once told me that they didn't care how much someone won because in the long run they would lose it back and more.
As noted in other comments, your examples are predicated on a single occurrence. But your point is that people want the greater reward even though their chance in the singular bet is significantly lower to win a greater quantity of money for the single bet as compared to the "sure thing".
I use to gamble back then. I love the casino at Vegas. I always got my bank roll back. Big bags and all.
Yeah man. You get chips and chips. I hope you invest part of that money man. It really helps.
Yeah it does man. My financial guy would advice I always give 65% of my income to investments. So you can see I do very well with investment.
@@hendrickwalter5078 That's an impressive advice there. It takes a lot to keep to a 60% off investment. I intend to start investing for retirement sake but I don't have the right information on how to go about it.
Making investments is the only means one can attain financial freedom. It all became clear after I made my first profits. I can assist you get across to my financial expert, Mr. James Miller. He will be of great assistance and his advices are highly recommendable.
@@hendrickwalter5078 I will appreciate this kind gesture of yours. Please how can I get to him?
Financially it's best to look at gambling as entertainment that you pay for
This would be true if gambling was entertaining, but it's not.
@@mjc0961 sounds like someone who's either never done gambling, or absolutely fucked themselves gambling
@@mjc0961 it may not be true for you, but I think gambling is the most fun thing to do in life
Financially it is best to own the casino.
That's exactly my approach. I like gambling on holidays, when possible. I consider 100 U$ my ticket price for a couple of hours of entertainment. Sometimes I will lose sooner, sometimes I will break even and consider it a win, I had fun for free. The (very few) times I win, true joy!
"conventual economics believes humans are rational"
and that's why conventional economics is thick
Applying maths to human behaviour gets some lovely elegant economic models. Just a shame they're complete nonsense and even more of a shame that they're wisely used
Also they suppose that persons dealing in whatever market are perfectly informed about the market they're dealing in, which is more often than not far from reality.
Economists know people aren't rational. It's just the baseline assumption because where else would you start? It's like when a physics problem assumes everything happens in a vacuum. There are many complex economic models that account for much more nuanced things like demography, culture, and location, but you don't hear about them for the same reason that all pop science articles stick to the same analogies and blurbs whenever some new technology comes out. Nobody wants to explain grad level stuff to a general audience that isn't even guaranteed to know the basics. Go to any university library and you can find thousands of published articles analyzing any nuanced circumstance or exception you can think of.
DrPhr0 Obviously, there are more in depth outlooks that often refer to case studies, more nuanced analytical models and historical analysis. But yeah, the problem while some of the more recent studies do acknowledge all kind of intricacies (sometime even contradictory to all kind of more well known classical and neoclassical beliefs), they do remain pretty unknown due to their complexity.
@@DrPhr0 yeah but physics doesn't fall apart when you add in air resistance and cause a rocket to fall down and explode, does it
We talked about this in my Behavior Economics class in college. You can look at the house's edge as an opt-in Entertainment fee. Blackjack has the lowest house edge, and slots the highest.
There’s also the entertainment value! If you like playing blackjack (which, to a skilled player, has odds close to 50%) and you only lose, say, $5/hour on average, that can be well worth the price of admission to have some fun.
If your getting blown while your playing or your intelligent enough to exploit something in the model to get an average gain then maybe?
Other wise theirs plenty of more interesting and cost effective ways to have the same level of fun.
Doesn't make sense
@@redsquirrel3893 For you, but their are risk lovers, it's not about the money but the experience.
@@redsquirrel3893 yet people have no problem spending hundreds of dollars on concert or sporting event tickets. Its literally the same thing, people spend the money they can afford on the entertainment they prefer.
@@redsquirrel3893 you have never played blackjack with friends for no money? It's a game like any other
Imagine a lottery that is a savings account in disguise. You buy tickets but never win, after some time, you get all the money you spent on the tickets back as a prize (and the interest is taken as profit).
Invest in silver or better yet platinum. It behave just like that. Year after year you can lose and lose but once a while (e.g., 2007, 2011, 2020) you suddenly get everything back and more.
@@ThePeterDislikeShow I'd rather just invest something properly
This is exactly how my bowling league worked. The house took a slightly larger amount each year as their fees, so each year the players in the league had to vote on how much to raise our weekly payment, which changed how much went into the prize fund, so we had to work out 3 sets of new numbers and vote on them. With people complaining every year that the total price was getting too high, one year I worked out a prize fund where only the top half of teams get paid (win) anything at the end of the year, instead of all of the teams, and we all got to pay $5 less per week (I think $14 instead of $19). Well 95% of the players just went completely batshit crazy that they wouldn't get any money back at the end of the year, when literally every single person from 1st to last place was saving money this way. Like last place wanted to pay an extra $200 over 40 weeks to get back $30. So I was the only one that voted for that one. We're surrounded by idiots lol.
"Finally a video without planes!"
*7:30*
"Oh, God dammit!"
The Ontario lottery started a huge advertising campaign last year with the catchphrase “why dream to the min when you can dream to the max”. That’s what they are really doing, selling fantasies.
Gambling is definitely magical for the casinos.
Money magically appears in their bank account!
Trolligarch because people are idiots, and they destroy and keep out intelligent people who can play the odd like count cards etc....
People like Derren brown the mentalist are banned from every casino in the world. They are all fiends and share data on how to spot and get rid off the smart people who know how gambling works and how to win.
@@hanniffydinn6019 Casinos are in the entertainment business, and need to have the edge on every game in order to pay for all their expenses.. which are a ton. Blackjack is one of the biggest games for a casino, allowing card counters to play would be very bad for business.
Michael Davis Q.E.D.
Unless it's a Trump casino
More like people walk into casinos, give them money, and pay money for taking their money.
Yes, but one can't play at casino an infinite number of times...
If you keep winning you can, you just have to take breaks to eat and all.
That's why it's a great idea to keep playing until you're ahead and then quit forever.
That's why you don't play against the house. The house always wins. Just play against other players.
@@3ngin33r7 That's what I did, when I turn 18 I was given ~$10, with the last chip I won about $35. Cashed out and never gone again.
But the casino can play an practically infinite amount of times. That's how casinos operate.
Everyone: You can't loose money while running a Casino.
Trump: Hold my wall.
hehehe "loose money"
I imagine money just falling out of people's pants
Oh cool,another leftist trash who listens to CNN.
Trump won a hell lot of money than he lost with the casinos.
@@mariusss95 And how exactly would you know that Sherlock? He never disclosed anything. Nobody has the slightest idea or proof that he is a billionaire or bankrupt. Until evidence surface, shut up.
@@michaelvedal1907 Then based on your statement how did the guy knew he lost money on the casinos heh?How do you,stupid fucking leftist,bash him for losing 1 bilion dollars when he never disclosed it.
Leftist trash,it amazes me how stupid you can get,commie filth.
M calm down
Interesting, I was just reading about this in the book "Thinking, Fast and Slow". It goes a long way to explaining higher crime rates in poverty too. The lower people feel, the more risk they are willing to take. You are more likely to take up bank robbing or selling drugs if you can barely feed your family.
When faced with two scenarios, one with a small but certain loss and one with a tiny chance for huge loss but a large chance at no change, you are more likely to take the chance the more desperate you are. Hence why only poor people go without insurance. (even if it's cause they can't afford it)
The math that casinos use to calculate they will win over a long enough period of time and enough hands being played is the same math that card counters use to beat the game of blackjack legally.
I think gambling works because while it is a monetary loss, there is more to it than that. The atmosphere and entertainment are worth more than the small percentage of monetary loss. The totality of the circumstance is that people would rather have the experience of being at a casino and losing 5% of their money than not be at the casino and keep 100% of their money.
Well said. How did they miss the obvious? People lose money at theme parks and movie theaters, but we don't say everyone who goes to them is irrational because they are losing money!
As long as you play because of the experience and not because of the money.
indeed. booze, money, girls and dopamine = good times 👍
I think the atmosphere and entertaiment have two main reason:
1. to make you take more risk and gamble more money
2. to make you return
Doesn't explain the guy holding up the line at the gas station while he purchases 15$ of assorted scratch offs.
The most important lesson I learned in high school was: "The Lottery is a tax on people who are bad at math."
So what about when the Powerball/Mega Millions payout exceeds $585M upfront cash after tax. Technically, the math is in your favor at that point. It's only happened once, but all the math heads should have purchased tickets at that point, right?
@@kenstevens7855 I actually agree with that logic. It doesn't change the odds of winning, but it does change ratio of investment to possible return. You'd have to ask an actual mathematician for statistical analysis, but that's when I would consider buying a lotto ticket.
The video glosses over a major aspect of the psychology of gambling. That outside of the math/economics, there is a value to the "experience." You could lump that in with "risk tolerance " but I think, especially in the modern era, it deserves its own considerations. Whether it be a casino game, slots, horse racing, lottery ticket, loot box,etc. Outside of addiction, shouldn't everyone's value of the experience be respected? Or at the very least, factored in to be viewed as a zero sum experience rather than a losing experience for the player?
@@cosanostra3530 No. Gambling is dumb, and that's a dumb take. The fact of the matter is that no entity would facilitate gambling if they weren't allowed to rig the odds in their favor. Casinos rig every game in their favor because risk taking behavior is fine for thee, but not for me. I'm not trying to kink shame you, but if FinDom is "your thing", just go be someone's piggy.
I don't know who, but someone actually needs to hear this, you've got to stop saving all your money. Venture into investing some, if you really want financial stability
Invest globally in bitcoin, gold, silver, forex market, commodities. Just don't be left out and save yourself
Beautifully said, I tell my folks these words everyday. It's good to save money but most people don't understand the market moves and tend to be misled in facts like this and always depend on money in the bank.
Pure wise comment.
I understand the fact tomorrow isn't promised to anyone, but investing today is a hard thing to do because i have no idea of how andthat where to invest in these?
@@rodrigo2014
Hey, this is a computer age. Peeps who aren't even traders make money from the crypto anjd forex markets ,how many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.
200/1 odds returns you $201 per dollar bet, not $300 as stated on the video.
Yes, exactly! Easy mistake to make, though, which makes it all the more problematic to have it wrong. 2/1 => $3, therefore 200/1 => $300 just sounds so obvious --- but wrong.
Andrew Ray it shouldn't be so easy to make when you're making am entire video teaching people about gambling and math =p
Yup, he was thinking of +200, which would return $300 on a winning bet
Yup, he was thinking of +200, which would return $300 on a winning bet
A Wendover video and a CGP Grey video on the same day. I must be in heaven!
Haven't watched the video but I'm going to assume that he puts planes into this somehow
At the very end, yes
You know it. 7:28. He relates the phenomenon to irrational fear of plane crashes, despite their low frequency.
Trusting anyone on the internet is a bad idea. so im not gona trust that you have not seen the video before writing this.
@@divinezoomer7305 That's Redditor thinking right there, not insane UA-camr thinking lol. Well done sir. Well done.
@@boblee52 I don't like reddit. Its filled to the brim with liberal propaganda and censorship.
A lot of this comes from the idea of prospect theory in behavioral economics, which was a new model somewhat made in response to the traditional utility theory, but it was based on actual empirical observations of people's preferences rather than being mathematically derived (utility theory). This has lots of implications in behavioral finance as well.
man speaks yapanese
I love this video (Learned a lot). Thank you for sharing this video, with all the breakdowns, descriptions, and dialogue (I really appreciate it).
Insurance is a legal requirement for many things. It is Illegal to not have insurance in many circumstances.
Deepfriar insurance is a racket all u need legally is to be bonded that's why I don't understand why company's are licensed and bonded but they still pay into car insurance
@@duartejones4353 SMASH THE PRIVATE INSURANCE INDUSTRY
You can be exempt in some places if you put up a cash bond. Or a religious exception because some folks consider insurance as a form of gambling.
Insurance should give back people 30% at the end of the year if no accident , some people pay it for over 30 years with no accident n get back nothing...
Yes, because insurance dampens economic shocks for large scale events
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
I see this in a similar vein to the Up / Down pick in Magic: the Gathering: playing any card that asks you to choose between two arbitrary values in an effort to guess whether that value exists on a card within the top x cards of your library, you always choose a value represented on a card you *want or need*. If you're wrong, those cards will either get out from on top of the deck or a likewise function, putting you closer to what you want. If you're right, then you get the card.
People gamble low prob high stakes because they want or need a life changing amount of money. If they don't get it, the decision is rendered moot. If they do, then it pays off massively.
Conversely people when they have the choice, they buy (home/car/life/flood/fire) insurance in order to avoid a life-changing loss of money that would come from replacing the thing lost or paying off a liability to someone else. Since people live only one life instead of many simultanously and that one life can be changed drastically by loss of car, home, or a parent's income. I think the video kind of gets this in regarding avoiding huge medical debt leading to bankruptcy but the same principle also applies to sudden very large replacement costs (in a savings-hostile economy) which the video is bad at understanding.
While you touched briefly on the financial service part of insurance that can make up for a customers loss, I thought for sure you would mention that people don't gamble just to win, but for the fun of it. The customers' average loss can be justified as a payment for the entertainment that the gambling game provides.
Yes
Its about physiology not economics
theres no entertainment in losing. Otherwise people would just play poker with their grandma with nothing on the line. If the act of playing the "gambling game" (poker, black jack, slots) provides you with entertainment you might as well play it without betting anything. Nobody in the history of mankind ever lost something and said to themselves "at least i had fun". With the exception of their virginity of course. That's always fun to lose, but to bad you can only lose it once. lol
Check out a few of the studies linked in the description if you want to learn more. They refute the idea of gambling loss being worth it for the entertainment and social value by pointing out that people are fully willing to gamble with lottery tickets and slot machine which have little entertainment or social value. Of course there's entertainment value in the casino, but, according to economists who have studied this, not enough to explain gambling.
@@Wendoverproductions that's pretty interesting, I'll have to check it out. I'm the kind of person who gambles (rarely) for fun and only plays games I enjoy like poker. I would never buy a lottery ticket, so maybe I just don't understand people.
Mate you just got shown on a popular dutch television show. It's called Zondag met Lubach. It's in their last show, which is also on youtube, on his last upload. It's the segment where you talk about how the traffic problem in Stockholm was fixed.
Nice video ,good contents,Everybody wants to earn and many end up loosing the ones they have ,there are other means of investing and making huge profits within a short while also,we all just have to invest wisely than loosing out.
You are right,I truly go with this,sometimes salaries can afford the life we want that why most of us engage in this and sometimes we want more. What’s your means of earring
To be stable f!nanc!ally one need to take extra risk,salaries can’t make one f1nanclaLLy stable
Yes I agree but not all risk are worth it and like you said it’s called risk , truly every one wants to earn and some wants to top up their earning accordingly
You can’t be successful or financially stable by depending on just salaries or stuffs like this,not condemning it tho,but we just have to face rea
I 1nvest in F0 R e x and St 0 c k mkt respectively
Excellent research, keep up with the great work!!
I'd argue that there's an important distinction between insurance and gambling. Insurance involves paying a little money when you don't have any critical expenses going on to receive a decent chunk of it back when you _do_ have a big expense; that sort of convenience and security is worth paying more money than you get back, so there's an actual service involved. It's less like a reverse casino and more like a funhouse-mirror bank loan.
Rich 91 Insurance companies are going to pay your medical / repair etc. bills. So your point?
"Thinking, Fast and Slow" by Daniel Kahneman is a great book explaining a lot of the psychological phenomena referenced in this video
I never understood it honestly.
I've had the privilege to walk through Monaco, Macau and Las Vegas and I saw the same things.
Huge fancy halls filled with slot machines, or gambling tables of varies kinds. There's expensive carpets, chandeliers, majestic architecture and gardens.
Often times even free food for gamblers.
After putting 2 and 2 together one should come to realize that gambling is ridiculously lucrative for the house.
All this has been built using gambling money. How can anyone feel comfortable walking into and spending money to a business like that?
It baffles me.
starts out as entertainment, ends up as an addiction
Entertainment is a factor in casinos as well. If you are smart and have the discipline, you could easily come out better than the casino, even if you didn't win a single game. I'll explain.
.
When I lived in Las Vegas (early 1990s), nearly every Saturday evening, my friends and I would spend a couple hours having a bit of buffet, then at a casino playing nickel slots before hitting the clubs... $2-$4 of nickels played slow (with friendly conversation and generous tips to the servers) netted me at least $20 in free alcohol (by comparison, the dance clubs charged $5-10/drink back then), so the casinos were a great way to score nearly-free booze before hitting the club. On Sunday mornings, we'd find ourselves back at the casino, a few of us nursing hangovers, but generally feeling quite good - have a cheap buffet breakfast ($2-3), then kick back with a freebie Bloody Mary or two while playing $5 worth of Keno, goofing off, and watching sports on big TVs from comfy overstuffed chairs in the Sports Book section.
.
If you were a local and really knew how to milk the system (I was only stationed there at the time, so I wasn't, and didn't), you did extremely well in that town with very little expense. I think on an average weekend I'd spent maybe $25-$30 max at the casino (including buffets), rarely got more actual money than I put into it, but I netted a ton of free booze, good food, and usually an excellent time with good friends. Now, compare that to how much it would cost to go out and spend money on all that booze, buying two full meals at a typical restaurant, paying to rent or borrow a place with big-screen sports and cushy chairs (if that were even possible) for a lazy Sunday morning/afternoon with your friends...
smart fella
I like it how you name us "those surveyed" while what we actually did was vote in Twitter pole. Now I feel like this wasn't wasting my time looking for memes but rather I productively spent my time participating in a social experiment
I've been showing this in my maths classes today. Great for getting a maths discussion started. Thanks :)
Explains so much about human nature...
Thanks, Team Wendover
I think you missed a huge point that is the fact that 99% of gamblers quit just before hitting big.
Well the biggest factor in our decision making is that we only have so much time. Accruing the most quickest or losing nothing and guaranteeing resources are both seen as viable strategies to survive. The in-between is consistent but not useful as it blends the downsides of both. The math can be explained by survival mechanisms.
There is something to be said for casino gambling merely for the experience. I don’t gamble in casinos often, but if I do happen to be heading to one, I may set aside a budget of (for example) $250 that I plan to “lose” (pay) for the fun of spending a few hours at a card game in the high energy environment of a casino. I expect to lose/pay that money and any gain is an unexpected bonus at the end.
I once sat down at a Vegas roulette table with $20. At one point it was $1200. By the fourteen hour mark I was back to zero, but I had fourteen hours of entertainment with free drinks sat in front of me, all for $20. That was a good deal as far as I was concerned. The point being I wasn’t in it for the winnings, I was in it for the fun.
I love the way he explained things which are so Smooth and Serene.
I didn't hear mention of entertainment being a motivation for patrons. I know I will lose money gambling but the thrill of winning has a value to consumers.
Exactly. They didn't factor in playing just to have fun playing a game. With their same logic playing a classic non-redemption arcade game is dumb even if you have fun playing since you don't win any money.
The IRS should do this: some system where every dollar you pay increases your odds of a full refund or mega jackpot. Instead of people cheating on taxes, you might see them over=paying on purpose :)
the idea of tax is that, in perfect condition the government would spend the exact amount of money it's taxed to maintain a zero in balance. So there's really no point of increasing tax income if the government don't really need it. Also if cheating on tax illegally one could leave a black mark on the social credit if the law allows it.
@@FlameRat_YehLon That extra money would be payed to someone through a lottery.
Knee Snap
You mean VAT invoice lottery? Well, that's one way to do it, but that's still not gonna push people to pay the tax well enough, and people would rather have less tax. (By the way, in China VAT for most products are 17%, with the exception of 3~6% on foods and 65% on alcohol and tobacco IIRC. Which is the main reason why so many people cheated.)
Lol this may actually work
Well, actually, the main reason insurance works is because of the dollar policy on inflation and the resulting cost of saving. Anyone who tries to save for a rainy day will lose due to the value of their savings going down. Thus, the option of saving is removed. Also, there are many state policies that force us to buy insurance, by law. So, really, we're not given the options you discussed.
6:28
"You already lost your money."
"NANI?!"
this is such a good analizes! thanks!
kinda ignoring the value of certainty there, if I need 5$, no amount of additional profit is worth the chance of not getting 5$
Yes, but if you don't need the $5, you might push the odds because losing won't bother you, but winning would be more rewarding.
turning down a garantee to push the odds for 4 times your money sounds insane
@@1chance4life76 Not if you don't need the money and won't mind risking it.
Great video as usual! The only thing I missed is a discussion of stock markets and day-trading as forms of gambling, this would've fit right in. (Also, many corny jokes available)
I never really got the casino thing, especially slot machines. That was until (long story) I was at one that I had put $1. I was naturally bored, until I suddenly won $80 off of a $0.25 bet. I left, but I caught myself thinking later that night I should go back. It was the weirdest thing.
Expanding everything to infinity is not reality, so why talk with in terms of it.
It is if you're running the casino or insurance company though
its about the thrill and entertainment for a lot of us. I don't expect money back when I go to a concert
With casinos, you forget to mention the economic value of the fun of gambling or the experience of it.
Very informative video thank you.
The 80% option doesn't only come with a "chance of loss", depending on the number of tries you are able to take for example 1 try you have 20% to loose everything and end up with 0$ 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.
I'm pretty sure it's not always about "hating losing". In the case of insurance, losing 100 000$ is more than a 1000 times worse than losing 100$. The impact of losing money isn't linear to the amount of money you lose, not just the emotional one but the material one too. Let's simplify things and say that people just buy the things that get them the most happiness/$. And let's say everything costs one dollar. Let's say that normally, you buy things that get you 50, 49, etc. all the way down to 10. If you lose 1 dollar, you cannot buy the last thing, losing you 10 happiness. But if you lose 10$, you lose 145 happiness>10*10 happiness.
Stepwise function. I like it.
@@samrightnow :D
Same with the winning $5. Of course I'm going for the $1,000. I dont need $5. $5 will have virtually no effect on me. $1,000 however will. If you upped it to like $5,000 vs $1,000,000 that's where I might start leaning towards the safer option. Also sorry for responding to a month old comment. Just had to get that off my chest lol
@@PinheadLarrysGaming Doesn't this effect actually cause the 1000$ victory to be worth less than 200 times the 5$ victory? The first dollars of the prize would be spent more effectively than the rest. There might be some psychology involved making one feel more than 200 times happier but at least using this model you get that it's not actually going to buy you 200 times more happiness
@@Quwertyn007 Yeah I see what you saying but they are sampling people for the $5 question only and calling them dumb for not wanting to take the $5 over the low chance of getting $1000. I wouldnt repeatedly waste $5 for the chance to get $1000 but if you're only offering me $5 or a chance of $1000 one time then why the hell would anyone pick the $5? The only person benefiting from $5 is a homeless person and even then what are they going to do with it? Buy one sandwich at best? They werent offering you an infinite amount of $5 vs $1000 choices. Only a one time question but he analyzes it as if they did ask it like that. That's a massive extrapolation from their data. Dont get me wrong that is how casinos work but theres a huge difference between someone giving you $5 vs a chance of $1000 and you paying $5 for a chance of $1000
It is unfortunate that you didn't evaluate the opposite behaviour when having the option between a lot of money for sure (100% for 1 million) or even more money with a probability and higher EV (50% to gain 5 million or even more). Most would take the million.
Marginal value of money
Amusing, but not surprising. I suppose it has to do with the way that the practical value of money changes depending on how much you have. If I have $1000 to my name, $1000 seems like a whole lot. Risking that amount may be questionable; I might prefer $200 with certainty over $1000 60% of the time. However, if I'm a millionaire, I would certainly take the $1000 60% of the time....
Very well explained & loved the % part of how ppl like risk especially the horse track part which I found myself playing useless horses that I know would lose instead of taking the favorite who usually wins.
On 200/1 though you get back $200 for every $1 bet not $300, other then that perfect analogy.
Well made simple introduction to multiple topics.
I would bet that economists would defend casinos by saying that gambling is rational for money launderers, tax evaders, and other illegal schemes.
As a guy that knows these statistics I don't gamble, however my step dad goes to the casino from time to time for fun and 3 years in a row has won thousands more than he put in, somehow he keeps hitting large jackpots, the workers at the casino just shake their head and tell him he is not the norm. Long story short, it's ALMOST persuaded me to go there and be irrational to see what happens
I know exactly what you mean. Understanding the maths behind it means you know one thing, but sometimes your experience or intuition can tell you another. I guess it is because few things in life can be broken down into pure logic, intuition is usually a useful guide to help you see beyond the logic. In gambling however, unless you can influence the roulette wheel, or the croupier, it really is pure maths.
7:20
"....it's tougher. The simple answer..."
😆
Thats so funny what you said about insurance companies - I LITERALLY SAY THAT!! LOL.
*Are insurance companies really paying out about 90 cents in benefits for every 1 dollar they take in premiums?* Because I have assumed this to be far, far less. And if so, can someone provide any links or searches to validate this? Because with a Google search I could find very little on the subject.
Depends on the industry, but yes. Insurers in most property casualty industries tend to pay out most of their premium income in losses. Car insurance, for example, has historically floated around 100%, meaning there are many years in which insurers pay MORE than they receive in premium. A huge part of a company’s income comes from investments and minimizing catastrophe payments through reinsurance.
Source: I’m an actuary.
Don't forget that insurance companies, as any other companies are operating in capitalistic world so they have to be competetive to each other. Being competetive basically means to lower prices which leads to lower income. I assume that this 10% income (0.90 cents over $1) is the lowest rate which is still considered as profitable. What more over in competetive market it cannot be higher because always other companies will lower their income to be more competetive then you, so you have to lower prices to be more competetive then them and circle closes. That's how capitalism works. Also this %10 income is not the only income they have because they are operating a huge amount of money which can be ivested in other forms. Exactly the same as banks do. This of course takes risk but it's additional way of making money for insurance companies.
Not always, for some area health insurance are almost break even after expenses but they are gateway for them to offer you their financial instruments that gave them nice amount of margin.
Easy enough.
static1.st8fm.com/en_US/content_pages/1/pdf/us/2018-annual-report.pdf
All insurance companies report income and expenses.
Combined ratio (the amount you take in compared to the amount you pay out) varies with the type of cover, but from what I read around 102-103% is normal, in other words you lose 2-3% as the insurer. The name of the game is to make say 5% a year through investing that money.
"all forms of gambling are set up to always make money for the house"
Shortsellers: wait what? How the duck?
this was the most informative video of all time on this topic.
great content as always
Well put video, but largely wrong.
Insurance at its most basic works as: if your house is worth 1000$ and there's a 10% chance that a fire might burn it all to the ground, EV is 100$; meaning if someone came to you and offered to pay you 1000$ dollars in the event of a fire and asked you for 100$ in advance, that's what's considered as an "actuarially fair" insurance. In other words, the EV of the insurance provider is 0. Now there are a couple of points here:
1) Correct calculation of the risk is obviously quite difficult in real life
2) Even if the risk is on point, the insurance company still needs more revenues to cover the cost of its operations (meaning it totally makes sense for them to charge e.g. 90$ on that deal in order to cover for costs and run at the very least on break-even.
3) The concept of moral hazard: when someone pays for insurance, they become more reckless as they know that they would be covered in the undesirable event. In simplified example above, e.g. person cares less whether they forgot to turn off the oven or not when they left their house. Moral hazard makes it such that the insurance provider needs to offer a "worse" deal before hand since people start caring less about their assets when they know they are covered, thus increasing the risk of the undesirable event.
Conventional economics do not ponder at explaining gambling or insurance. In fact, there's 3 common risk profiles: risk-averse, risk-neutral and risk-loving to explain the difference of which option a person chooses even when they have the same expected value.
Commercial banks are not the ones ultimately responsible for the interest rates. The interest rate is controlled by the central bank and periods of higher and lower interest rates have to do with completely different things than the topics in the video.
Your very first sentence is largely incorrect.
that $6.25 question is flawed. People like round numbers, I don't want to fiddle around with change
It's not very well known as far as I'm aware but there is a very similar concept to prize-linked savings in the UK - it's called premium bonds. You can enter up to £60000, then once a month each pound ("bond") entered acts as a lottery ticket for up to £1000000. You can withdraw your money at any point. The average return across all users of this system actually beats inflation, but since that's only because of the £1000000 prize, the median return is much lower. Having £3500 in there for 4 years will give you a likely return of about £25-£50.
It's worth noting that if you start with 100$ and play indefinitely, you won't actually leave with 100$. You will leave with 0$ because in an infinite sequence of plays, a sequence of losses will result in you losing all of your money eventually. If the house isn't assumed to have an infinite amount of money, then a string of successes that results in the house losing all of its money can also occur, but this is much less likely. This will cause to to stop being able to play. (You can still bet 0$, so the sequence is still infinite, you just will never earn money either.)
In essence, the statistics of gambling only works out so cleanly when both parties have infinite funds to pull from, which is (almost) never the case. The statistics, however, are still accurate for predicting the outcomes of individual or small sets of plays, but when attempting to analyze and predict the behavior of the system on a large scale, you need to take into account the probability of exhausting your funds.
In the same vein, when choosing between a sure $5 and a 80% chance for 6.25, they're only worth the same when you have an infinite number of attempts. With only one, there's a 20% chance of having nothing if you take the latter option - which means that in many cases, it won't be the one you want, since it's often better to have less with surety than a possible nothing.
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
Can I become "God of Gamblers" & beat Chow Yun-fat, after watching this?
You won't even gonna beat Stephen Chow in a gambling game XD
You can beat the chow yun part for sure
Dewa Judi :))
Omg yesss
Great video very informative
Funnily enough bonus bonds in new Zealand kind of worked like the idea of a prize savings account. Was around for ages too