Split
- Gambling and trading are more alike than many financial experts care to admit
- Even supposedly sophisticated financial markets are not immune to a ridiculous dopamine rush
- Betting on uncertain outcomes is the seed of human progress
A particular football event is a reminder, if need be, that Britain loves betting. The Qatar World Cup will break all previous gambling records. Flutter – owners of SkyBet, PaddyPower & Betfair amongst others – expect to see ₤300m on their books in the UK and Ireland during the tournament.
And it’s not just here in the UK. Across the pond, a study by the American Gaming Association (AGA) found that over 20 million Americans will come to the Worlds tables with a cool $1.8 billion ready to bet. The liberalization of US gambling laws is the focus. Casey Clark, Senior Vice President of AGA, enthusiastically welcomed the start of a new era, “As the first World Cup with widespread availability of legal sports betting, this will surely be the most heavily wagered soccer event of all time in the US, as more than half of all American adults have access to legal betting options in their home market, legal sports betting is increasing the engagement of American fans at the most-watched sporting event in the world.”
But while the amounts of money changing hands may reach record highs, gambling is nothing new – it’s been ingrained in our culture for centuries. In which The good old days™Men (and it was mostly men) would rush straight from work to the smoky bookies, trade a wad of cash for a small betting slip, and eagerly await the outcome.
Historians have traced our love affair with these games back to 3000 BC. and discovered a dice set in an ancient Mesopotamian tomb. Gambling is in our DNA. Also financial speculation. The Amsterdam Stock Exchange was founded in 1611.
Yet it remains a highly divisive issue. Gambling is seen as a vice, something frowned upon. A way for the reckless and reckless to lose money. But those who scoff at dumb gamblers and their adventurous spirit may be shocked to learn that gambling isn’t inherently bad. Or that at the core of modern society, “gamers” hide in plain sight.
For example, traders and investors are experienced players.
Hundreds of billions are “gambled away” in the financial markets every day. The epic last frontier of human speculation and competition. Traders, investors and bankers face off in a Darwinian battle between the world’s best-informed participants, each betting on an uncertain future.
Gambling and trading are more alike than many financial experts care to admit. History has it that investing is based on detailed and sophisticated research and analysis with the hope of a longer-term payoff, while gambling is purely based on luck and for short-term entertainment.
Both endeavors involve risk-taking – which is effectively a decision under uncertainty. People make decisions based on perceived (bad gambling) or calculated (good gambling) probability and then support those beliefs with money in hopes of making a profit or return. What is the difference?
Starting a business is gambling too!
Naysayers will argue that investing is much more than that refined as simple gambling, but it’s really just a matter of how Serious You take your bets…
Betfair co-founder Andrew Black is the perfect example. An extremely devoted gambler, he developed his own software to detect bookmaker odds mispricing long before online gambling was even dreamed of. Black was so successful that he quickly ran out of bookies to take the other side of his bets.
This is the origin story of Betfair: “If you don’t make me a market, I’ll build my own exchange“. The creation of Betfair was itself a gamble that almost failed. Ironically, the unlikely merger of an undercapitalised, popular betting exchange (Betfair) with an overcapitalised, less popular competitor (Flutter) bailed out both companies and formed the basis for the betting giant it has become today.
Betting on uncertain outcomes is the seed of human progress. Most entrepreneurs fail with their first venture. 60% of UK startups fail within the first three years. Yet many of society’s most transformative innovations have been born of risk-takers. Those players who bet everything and lost, declared bankruptcy and started over…
Tech companies like Shopify & Facebook (Meta) have been implicitly over-busy during the pandemic bets that the post-Covid era would mean a quantum leap in online commerce and relationships. You were wrong. Now they are downsizing. Their share prices were decimated in 2022. Those bets didn’t pay off.
Play the lottery?
As in business, gambling in life carries risks. Available to any adult with a smartphone, a punt is fueling what critics have dubbed the gambling epidemic. It’s not like we need the nudge, although research is struggling to establish a causal link between exposure to advertising and the development of problem gambling, it doesn’t take a genius to figure out that the more betting companies are spending on sponsorships and advertising , the more more people play.
Take the example of this excellent one Bloomberg report on the UK betting industry. Stewart Kenny, the co-founder of Paddy Power, left the company in 2016 ‘because of the collective failure to contain a gambling epidemic‘:
Kenny said his position on the board became untenable when senior managers shelved a safer gambling campaign conducted in Australia earlier this summer because it had proved too effective and was costing it money. He finished his speech and later that afternoon left the building for the last time, never to work in the industry again.
When it works that well Break people from Gambling, there’s a good chance the reverse is also true.
But the biggest danger is probably that gamification of gambling. These 25p games. Slot machines in the palm of your hand. Spin the roulette wheel, so close! Try again! Have a free spin on us! We’re just not made to deal with it.
The National Lottery is “played” but the odds of winning the game are infinitesimal. Any regulated company (bookmaker or retail broker) offering a game with such low odds would need to post a disclaimer in big red letters…
THEY PROBABLY WILL NOT: THE CHANCES OF WINNING THE EUROMILLIONS JACKPOT ARE 1 IN 139,838,160 AND MOST WINS ARE BARELY WORTH
You will have trouble finding this statistic on their website. Camelot has raised over £8 billion bets ticket sales in 2021. Flutter generated a comparatively meager £6 billion across all of its household betting brands over the same period.
Even supposedly challenging Financial markets are not immune to a ridiculous dopamine rush.
Enter the new “innovative” thing in finance
Robinhood took over the stock market scene during the pandemic. A new broker that promised commission-free trading along with in-app confetti animations to “celebrate” every trade, rewards, trending stocks, and a game-like interface.
The platform appealed to a bored and hyper-connected young audience that quickly grew into an army of day traders. Many had no idea how the underlying market worked. The combination of Wall Street Betting Subreddit, lockdowns, and a broker that gamified markets were undeniably powerful. The casino doors were wide open and you didn’t even have to leave your house to play.
The effect stretched far beyond the reach of Robinhood and her band of merry men. Stock prices became memes. The markets have been turned into one giant casino, massively devoid of any form of rational, fundamental analysis or valuation.
The law of attraction is the law of attention
Where the collective attention goes, money quickly follows. Wall Street Bets & Robinhood became infamous. People won and lost enormous sums of money. The media amplified these stories of huge bets and payouts, further fueling the mania. Just like the big sporting events everyone wants to bet on, money flowed towards attention.
It’s a repeating pattern. Whenever there is a new trend on the financial markets, everyone wants to join in. Boom in the real estate market? Everyone wants to buy houses and become landlords. When there is a big rollover in the lottery, everyone wants to buy an extra ticket or two. Mass attention is a money magnet.
The focus is on the play instinct. We are all players. Most prefer not Phone call it’s gambling (probably because of the negative stigma) but we all make implicit bets, across multiple domains, throughout our adult lives.
It’s uncomfortable to admit, but no matter how smart you think your venture, there are always risks and uncertainties involved. That is the nature of existence.
Smart players simply know the conditions that are more likely to result in a positive outcome. Stupid gamblers tend to repeat the same bad bets, ignore risks and, unless they are very lucky, end up with the same negative outcomes.
And funnily enough, that extends to politics too… If we accept that risk is a ubiquitous factor in our lives, then doesn’t it make sense to study the successful gamblers in society rather than scoffing at the art of gambling itself?
macrodesiak is passionate about helping people understand the complex and ever-evolving world of finance and business. With a deep understanding of international finance, the team focuses on providing readers with straightforward financial perspectives and analysis.
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