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The Magic Economics of Gambling

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Text Comments (2193)
Pew Series (23 hours ago)
I think the reason humans like high risk high reward gambles is we just can’t process how unlikely one in a thousand is, so there isn’t a very big difference emotionally from 1/100 to 1/1,000 and so we don’t need as much reward money to make us want to take the greater risk once you go past a certain point, because it’s not a meaningful change in the human mind.
Joe C (1 day ago)
I’d take $5 100% over any of the other choices. First, The amount is added on top of your gross income, which means potentially more tax for the higher amounts. Second, there’s a diminishing return of money. The first dollar is worth more than the second dollar. This is less obvious in small quantity, but if you consider one million and two million, it’s easy to see that going from zero to a million gives you more benefit than going from one million to two million.
Daniel McDavid (2 days ago)
Well I don't think it's irrational to gamble. You know that you're almost certainly going to lose money, but if you enjoy it, how is it any different to paying for movie tickets or other entertainment? Nobody would take a deal where they pay $100 and get back $94, but that's not what roulette is. Roulette is effectively paying $6 for entertainment. I personally don't enjoy gambling but I don't see why it would be considered irrational if you take into account the fact that people take pleasure out of it.
Sellisa (2 days ago)
I get nothing back from my car insurance because I don't hit people. I guess that is their margin. Also if your going to gamble, the stock market is the way to do it. As long as you pick large caps or index funds you will likely do fine and if you pick very well you can double your money every couple years.
SuperPlayz Gaming (3 days ago)
Remember kids... the house ALWAYS wins.
XxWolF-_-PicKxX (4 days ago)
Just to comment on the start, casinos make sense just like how going bowling loses you money. Of course, people gamble for fun, not to make money! They know they'll likely lose, but the rush of potentially winning is worth the average loss.
Nabael (4 days ago)
Risk taking behavior and addiction also play a huge roll. Most compulsive gamblers know full well they are losing money overall. But the rare few times they won big and that massive lump sum of money was so pleasurable it was like a drug. So it sticks in their minds and they are after that high.
Safrus Salmus (5 days ago)
I think 5 dollars gets prefered, because it's easier to understand how much it actually is, while noone can calculate 80% times 6.25
DynestiGTI (6 days ago)
3:13 yeah but we're not taking the bet infintie times are we? It's a one-time bet so 100% beats 80%, obviously though we have our limits and if the profits for the 80% were increased past say $10-20 then people would switch to that bet.
Ross Martinez (7 days ago)
Umm, insurance _DOESN'T_ work. Not in America, anyway....
Steve P (7 days ago)
perfectly intelligent poeple? LOL have you seen the clientele in a casino?
keithjohnson839 (7 days ago)
Don't play roulette period..total ripoff
Asilomar (7 days ago)
Bruh u cant equate 5% chance of 100 and 100% chance of 5 cause im not gonna fucking do it infinite times
jSd Cool (8 days ago)
How ever if you only have 1 play would you take $5 or are you willing to take a chance on $100000?
Rappie (8 days ago)
If you play an infinite amount of times with 100$, you would leave with 0$, as there is a 100% chance that you had a consecutive losing streak that would leave you with 0$ and unable to continue betting
mazibukomail (10 days ago)
This is all you need to know: the house always wins.
Max Aggropop (11 days ago)
you forget that insurers are brokering their risks. otherwise they couldn't be profitable. risk mitigation is the lost art of economics...it isn't even considered in some fortune 500 portfolios. sounds dumb, is fact.
Zach Christin (13 days ago)
Is this based on the Barberis academic paper from Yale? It follows it well. As someone who works in a Vegas style casino and specializes in gaming mathematics, I am a big proponent of letting people know the math behind the games. Having a basic understanding of what a casino does helps keep people from becoming problem gamers.
E1craZ4life (13 days ago)
Insurance makes money off a small chance of loss, while casinos make money off a small chance of enormous gain.
Aiden Rae (14 days ago)
So essentially, gambling is more fun that just having money
Petra (14 days ago)
Fear of missing out?
S-Train (14 days ago)
8:09 Paying even money on a Banker bet??? Where is that casino? O_O In all seriousness, if that happened at a real casino instead of a gaming expo, that dealer (and their supervisor) just cost the casino $75 for not taking out the commission. That'll probably get the dealer written up (and the supervisor, if they weren't fired) Also, can we talk about why that dealer is only using her right hand? That looks incredibly uncomfortable, as well as being inefficient
ToDreamOrNotToDream (14 days ago)
This is a smart ad.
Tom Peled (15 days ago)
Can't wait for PETA to see this.
FlashOfLight (16 days ago)
The insurance explanation is flawed. I am forced to buy health insurance even in the US which has no national health insurance. I am forced to buy auto insurance. I am forced to buy homeowner's insurance. I don't have a choice to roll the dice. We're not true casinos for insurers either because they get pseudo infinite rolls and pseudo infinite bankroll. The $5 example is terrible because it's 2019 and that amount is like pocket lint. A much better video could have been done with the game show Deal or No Deal where players look at the number of high value briefcases left.
Josh Pechman (18 days ago)
Insurance is bullshit and not a risk from the companies. If they start getting a loss they just jack their rates up. Also the people as a whole may get close to their return back but not the individual because 1 dude will sue for 4 million dollars because his neck hurts from an accident
michael watase (19 days ago)
with that roulette table, why can’t you pay 10 dollars and double for every time you lose? you will eventually win and gain all your money back if you get a bad losing streak.
E1craZ4life (13 days ago)
That can only work if there were 36 black and red numbers without the 0 and 00; those two numbers are how roulette gives the casino their edge.
Ilman Hakim (20 days ago)
Life is a gamble, but do not gamble
Márton Szőcs (20 days ago)
$6.25 has roughly the same utility to most people as $5. It's not risk aversion, it's just that you can buy roughly the same thing for the two amounts. However, having potential $20, $100, or $2000 even on the same expected returns, give you very different utilities. Also I'm not sure why it is so weird that rational ppl gamble. Pretty much any service we use includes a cut to the service provider as we know they'll run on a margin so that they stay in business. If you go for a $20 haircut, you only get $18 worth of time, products and tool usage, if you get a $10 burger, you only get $9 worth of food and service
Matthew Wilkinson (21 days ago)
You forgot about the time value of money. Insurance companies invest those premiums; that's why they can be profitable even if they have a negative combined ratio.
HaleyHalcyon - Gaming Channel (21 days ago)
I've heard of a gamble that's theoretically worth an infinite amount of money, but always makes the House money. Here's what it is: The gambler pays a fee E to enter, and the jackpot starts at 1. For each round, they flip a fair coin. If they get heads, they proceed to the next round with double the jackpot. If they get tails, they get the winnings of the last round, or 0 if they get tails on round 1. For each round, there is a 1/2 chance of dropping out, and 1/2 chance of advancing. Iterate through, and it becomes 1/2 chance of 0, 1/4 chance of 1, 1/8 chance of 2, and so on. The expected value of this bet is: 0 × 1/2 + 1 × 1/4 + 2 × 1/8 + 4 × 1/16 + 8 × 1/32 + ... = 0 + 1/4 + 1/4 + 1/4 + 1/4 + ... = ∞ So we, as the house, could theoretically set E as high as we want, and it would always lose us money! But we know from common sense that no gamble could possibly have infinite value, and this still makes us money in practice...
Ludvig Nygaard (21 days ago)
To the question at 3:00 I'd pick 6.25 because the amount is worth so little that not getting it would be totally acceptable. If you'd upped the amount to 50 vs 62.5 or 500 vs 625, I'd have taken the surefire money though, because at that point, it actually starts hurting when "losing" it. Same goes with the other deals you offer. 5 bucks is just barely worth my time, but give me a surefire 50 vs 200, or 500 vs 2000, I'd still take the sure fire money. Even, at 50 vs 10000, or 500 vs 100000, I'd still take the sure money, because I understand how percentages work. Yes it'd suck if I was then told I'd have gotten the larger amount, but I'd still have gotten a good amount of money. 5 vs 1000 I'd go for 1000 though, because again, 5 bucks is just not worth my time
ZhangtheGreat (21 days ago)
I find gambling extremely boring. I was never a cards guy, and growing up playing deep, complex video games with story arcs and varied gameplay, casino games just feel ridiculously simple. Ooo, press a button and watch reels spin! Ooo, watch this ball spin around this wheel and see where it lands! Really? Give me something more complicated and maybe I'll be entertained enough to throw my money at a casino.
Chris InKilleen (21 days ago)
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%.
GIGI 2 (30 days ago)
https://1xirp.world/lt/?bf=5c98aba6e152c_513122161 good site
Dead Squid (1 month ago)
“Not a plane video!” 0:00 7:32
Srijan (1 month ago)
You know there are no clocks at a casino.
Srijan (1 month ago)
To know how insurance, casinos, poker etc work learn probability, mean and variance and binomial distribution.
UnboxViews (1 month ago)
Many mistakes in a video, many
Anirudh Pisharam (1 month ago)
Alais Paradox?
Kris Smiley (1 month ago)
I think the creator of this video must have had a very sheltered life if they are just now realising that humans are not rational beings . Are they not aware that trump was elected president ( note: I am not a democrat , and no I didn't vote for him)
Marketer monk (1 month ago)
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AsellusPrimus (1 month ago)
A 100% chance of gaining $5 and a 80% chance of getting $6.25 are not equivalent. Maybe for someone involved in 100 such transactions, but an individual involved once in this transaction has to decide if they prefer guaranteed money or more money gained at a risk - but they're not the same amount of money. You are either looking from the gambler's perspective or the casino's perspective, but taking a theoretical objective position in the mathematics dimension doesn't actually explain what's going on.
Brian Kimmel (1 month ago)
No casino has ever been built from gamblers winning. Period
Duddy E (1 month ago)
Ohhh ok
Dat Nguyen (1 month ago)
Best odd Dice game never better with just .05 play now at https://safedice.com/?r=97336
Nathan Hewitt (1 month ago)
7:20 "....it's tougher. The simple answer..." 😆
Allonan (1 month ago)
Well, now insurance companies are making record profits in the U.S. because all the cost has been pushed on the consumers on top of extremely high premiums. We are talking about $400+/mth for a mid tier package and you don't want to have something happen to you on a low tier package because deductibles are extremely high before ins will cover anything. On top of this many businesses have switched to HSA accounts which just pushes all the cost on the consumer as well. This cost goes up or coverage goes down according to how much the drug companies want to make and they can go up without any reason on life saving drugs. Costing people lives yet a small fine if anything is done to them... time to make new laws protecting the people from big business having too much control over our lives.
Manpet Epetrop (1 month ago)
What a bullshit analysis by a 18 year old of insurance and gambling (as if there are anywhere related to each other).
Sontapää11 Jokulainen (1 month ago)
How is it that 80% chance to get $6.25 the same as 100% chance to get $5?
Sontapää11 Jokulainen (1 month ago)
I get it now.
Martin Alebachew (1 month ago)
No, that actually the Big Numbers Rule
TJ Miller (1 month ago)
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...
Bolun Liu (1 month ago)
I feel like each time when I watch your video I have been reading a term paper from a doctorate candidate.
Dhanu R (2 months ago)
Am I the only one who never buys lottery tickets?
一生秘密チャンネル (2 months ago)
There was also a picture of Japanese pachinko on the way. In Japan, the movement to eliminate pachinko and slot now is strengthened, but now it was decided to make a casino. Many Japanese are not interested in the gambling dependency problem. I am doing enlightenment activities, but I am afraid that casinos will be made. 途中で日本のパチンコの映像もありましたね。 日本では今パチンコやスロットをなくそうという動きが強くなっていますが、今度はカジノを作ることが決まりました。 日本人の多くはギャンブル依存性問題に関心がありません。 私も啓発活動をしていますが、カジノが出来てしまうのが怖いです。
Simon András Péter (2 months ago)
*The health insurance example is kinda whack. For example: if you have a better job in the US the employer pays it for you, not you, and here in Europe it's mandatory for employers AND employees to pay it. Actually it's mandatory to pay a small amount even if you are unemployed in most European countries.* *Also, in case of casinos they also have bonuses and loyalty programs, and also you get entertainment out of it, therefore the total value if more than the invested amount if you factor in entertainment.* *And lastly, :d Squarespace is not a good deal, in the professionl world you get laughed at for using Squarespace. Wordpress does ll of that, just as user friendly and it's FREE with FREE hosting.*
BLAIR M Schirmer (2 months ago)
These idiots think the assumptions of classical economics, that people are fundamentally rational, are correct? Idiots. Love to play poker against "Wendover Productions."
Dead Squid (29 days ago)
Play against a plane.
magnetospin (2 months ago)
100% of $5 and 25% of $20 may look like the same mathematically, but it's not the same in real life because you don't get unlimited number of tries in real life. You often only get 1 try, then it's a choice of choosing $5 for certainty or 75% chance of no money.
Mr Everest (2 months ago)
all Insurance company got most of their profit from investing the premium they got from you.
Dereko (2 months ago)
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.
Joshua Salem (2 months ago)
8:50 “About half of Americans can’t pay off an instant $2000 expense because they aren’t putting money in banks” No, it’s because wages are laughably low and our economy has been funneling wealth toward the people at the top for decades while the poor get poorer
james (2 months ago)
Banks give low savings interested rates so that inflation outruns your interest and you actually lose money and they gain. If they could make a penny a year off of each 5 dollars in everyone's savings account they would be rich. Oh wait they are already rich, because they make more than that.
james (2 months ago)
You really missed a lot of the key points and named some that are insignificant through out the video.
MangoMan Power (2 months ago)
you don't lose any money so there's really no harm for me (in the 5$ guaranteed one)
booboss (2 months ago)
About insurance there's other thing - you preffer to pay $1000 a year (which basically means loose for nothing $1000 a year) to not being obligated to pay for example $100.000 at once if something happens. More over you wouldn't probably even have that $100.000 to pay for someone's smashed car for example. So basically insurance may be compared to gambling but in reality it's more like paying for peace of mind. It's a waste of money if nothing happens and life savior if it does.
Luke Crommer (2 months ago)
6:40 the bottom horse has 200:1 odds.... So you get $201 for every $1 you bet ! This is why gambling is effective... Dumb people don't know maths, and some can't even read from a script they've written
Austin Downing (2 months ago)
Insurance "works" because it's the law to have it.
Bill Wendling (2 months ago)
This is interesting, but I think you would get better results offering 5,000,000$ at 100% as opposed to 6,250,000$ at 80%, or some other non-100% amount. The reason being that 5$ is a negligible amount to most people. Risking not getting 5$ isn't that big a deal. However, risking not getting a live-changing out of money *is* a big deal to most people. For me, if you offered me 5,000,000$ at 100% or N$ at some a non-100%, I would take the 5,000,000$ always and not think twice about it. And I consider myself a gambler. :-)
heyheyjc (2 months ago)
Government-run prize-linked savings, called Premium Bonds in the UK. Don't know when they started but I had some 45 years ago.
Rhyno Souris (2 months ago)
Insurance: When you win, you've lost. When you lose, you've won.
Space Ape (2 months ago)
I've played so much XCOM that I understand probabilities better. 80% is not enough. 0.5% Is RIDICULOUS.
CJFAULKNER (2 months ago)
The government requires drivers to purchase vehicle insurance. Insured drivers have to pay a deductible to file an insurance claim. And insurance cost increases when a claim is filed.
kil koh (2 months ago)
$13,000 up in gambling last year...
Allan Madsen (2 months ago)
win 77000 dollers https://bit.ly/2V68MO1
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Rhyno Souris (2 months ago)
Trading is a zero sum game. For every winner, there's a loser. With fees, for every winner, several losers
Merry merry Girl (2 months ago)
gambling wrecked my life, i would love to learn how to trade.
Tim Quick (2 months ago)
Pankaj Barwal (2 months ago)
sir, I just love your content, it's amazing. from where do you get your pictures? do you click them yourself or download from any site?
Gaston Phalange (2 months ago)
Gambling should be illegal. Majority of us are stupid people who give in to out impulses. Man can't control its urges. No one wins in gambling. You always end up losing end of the day. Man will keep chasing till he ruins himself. It is a big problem!
Ctrlbadger (2 months ago)
Shouldn’t we just think of this as a Rational Consumer focusing on Short Term Gains vs Long Term Gains?
Bullet proof (2 months ago)
The whole damn idea with this guy making this video is just to show the world the truth😜
Ben Phillips (2 months ago)
there is no difference to me between the 100% chace at $5 vx the 80% chance at $6.25, but fuck coins
Ben Phillips (2 months ago)
but gimme the 25% chance at $20 cuz fuck smaller denominations
Ikantspell4 (2 months ago)
Risk tolerance's is a complex decision. Shared risks and shared rewards involve complex choices and devolving choice to basic information isn't necessarily applicable to real-world choices.
denemem canımda (2 months ago)
Its so exciting to play! I have found casino which gives away 2000 eur and 200 spins! G E T C A S I N O . T K( without spaces)
Everybody talks about that casino! G E T C A S I N O . T K( without spaces) They giving away 2000 eur and 200 spins
ggnoobsnore (2 months ago)
Expectation is only one part of the analysis You need to consider the chance of the outcomes.. edge vs odds
Surender Yadav (2 months ago)
Here i will explain it quite simply, see It's all about Human behavior and its instincts For example - When you enter a casino you see people are laughing and having fun, having drinks yet the fact, remains that they are risking their hard earned money for a simple Chance to make more money. Now you see this and instantly your brain is in happy mode, it feels good and you enter the casino and you also start gambling. Now on the other hand are insurance companies, same gamble , you pay your hard earned money for a simple chance to get higher claim and full damage recovery for a very small amount but here the circumstances are quite different. When you visit a insurance office there you see employees on their desks with their sad faces that are literally telling you to not enter, no one's laughing and there's no drinking and the people who are nevertheless going in the insurance office don't seem quite happy and upon entering they are asked every single proof of their identity from the age 0 like driving license, ssn and various other documents and so your brain automatically gets the image to avoid going in the insurance office as much as possible. So it's the same gambling yet we don't feel the same way entering between a Insurance Office and a Casino. Unless the insurance office had employees who were always smiling and laughing and having drinks and upon entering you would be provided with a drink from a badass looking girl and all you needed to do was leave your vehicle key there. Then i would say everyone who has a insurance would be less if not equally happy to enter a insurance office compared to a casino and also people wouldn't be afraid of having accidents anymore.
Shadhin Magnito (2 months ago)
Hey guys how about doing a video on stocks
Nate Hill (2 months ago)
If you give $300 back on a $1 bet that’s 200:1 ... well the only thing I wanna know is where do I place a bet with you?
Tiger Craps (2 months ago)
Emotion of winning and losing is what keeps these casino's going.
Marks Piano - PGN Piano (2 months ago)
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 ;)
Vincent DeBellis (2 months ago)
That lady should cover her pin number better.. there was a creep behind her with a camera!
E1craZ4life (1 month ago)
Vincent DeBellis Who’s that lady?
PegenGaming4K (ohne 4K) (2 months ago)
Also one version of gambling: capitalism.
Willlysson (2 months ago)
”Gambling” a.k.a ”IQ tax”
Radi0he4d1 (2 months ago)
Gambling is degenerate, kids. Don't do it.
Magnusmaster (2 months ago)
What about loot boxes in videogames? That makes even less sense than gambling, since some people spend 100x more on loot boxes than on premium games despite premium games being superior in every way... but people can't help but getting hooked on a Skinner box.
Xexomaru (2 months ago)
Didnt John Olvier show debunked the last part of education with lottery? Im disturbed at how they made it look great on this video
joe schultz (2 months ago)
Anyone else pick the exact opposite probabilities than the average person?
DJP 36 (2 months ago)
With insurance in some countries you have to have it. In the UK it is illegal to drive with out insurance.
J D (2 months ago)
Is no-one else going to say that a horse at 200/1 returns $201 for each dollar bet, not $300?
DesertStateInEu (2 months ago)
Somebody already said it but $5 with a 100% chance and $6.25 with an 80% chance are not the same. Sure mathematically they have the same value. But there is no guarantee that you will end up within that 80% chance enough times to make a profit. If you win 1 round in 5 rounds you play, then you will have no profit and no loss. If you win more than 1 round in 5 rounds, you will have a profit. If you end up winning 1 round in 10 rounds, then obviously you will have a loss.
Brandon Walker (2 months ago)
A major flaw in this video is comparing limits of odds when allowing time to tend toward infinity when in reality humans live extremely finite life. Even a prolific gambler will only play a given game ten of thousands of time.