What is Gambling?

Dice, cards, and chips for gambling games laid out on a table.
What is gambling? It is the staking of something of value on an unknown outcome.

“What is gambling?” is a great question to ask because it leads us to consider many different things.  Gambling is the act of risking the loss of something you value on the outcome of an event that you cannot be sure of.  Setting aside all the ways in which gambling games can be rigged, in an honest game no one knows what will happen.  The wager is made in blind faith by both sides.

Some people say that casino games are unfair or “rigged” in that they incorporate a house edge.  The house edge is the percent of all wagers that a casino expects to retain over an indefinite period of time.  When you think about it, the house edge is unfair to the house because in any two-option game there should be an even return to each side over time.

In other words, you won’t find a casino that offers a coin flip game as a main form of gambling because it only offers a 50% theoretical return to player.  Why would you gamble on coin tosses when you can just go play the slot machines where you’ll get anywhere from 64% to 98% theoretical return to player?  Most modern slot games offer more than a 90% theoretical return to player.  That means the house edge is usually less than 10% on most gambling games.

Bonus offers subject to change.

When you look at it this way, casino games are more fair to gamblers than random coin tosses.

Problem gambling occurs when you consistently use bad judgment in choosing to gamble, how you gamble, and how much you gamble.  A problem gambler cannot stop, or struggles very hard to stop gambling.  Problem gambling affects an estimated 5% to 10% of gamblers.

We have always gambled.  It is a part of life.  The frog that tries to catch a fly is gambling some of his energy on the hoped for return of eating the fly, which will hopefully provide more energy in exchange for the effort.

A farmer gambles that his crops will be harvested at a profit.  He works throughout the year to make his fields ready for planting, then plants his seeds, fertilizes the crops, and then harvests what he can.  All of these actions cost him time, energy, and money.  When he sells his crop he needs to make enough money to at least break even but he hopes to make a profit.  He is risking much on the outcome of an unknowable future event.

If everything we do is a gamble then why is organized gambling forbidden in some places?  And why do we forbid children to play organized gambling games if they are risking their lives in just crossing busy traffic streets?

The answer comes back, in part, to judgment.  Society has learned that people go through periods of exercising bad judgment.  Making organized gambling illegal is one way to react to collective bad judgment.  But restricting children from organized gambling protects them while they mature and learn how to use good judgment.  It is simply good judgment to teach children to make good choices before you expose them to situations where they can easily make bad or risky choices.

Gambling differs from life in a very important way: in life you take risks in order to survive.  In gambling you take risks in order to increase your wealth.  Whereas in life the risks we take may seldom lead to failure, in casino games failure is built in to the system.  Someone has to pay for all the winnings and those winnings come from the wagers made by the people who lose.

Gambling is a true circular system.  It creates no wealth except for the middle man, the casino, who handles all the cash and takes a fee for his trouble.  The gamblers are passing money back and forth.  Gambling itself, unlike farming, is not productive.

We must put money into any system in order for that system to generate wealth for someone.  An entertainer generates wealth by charging admission fees to performances.  The attending public pays those fees and the entertainer keeps the money.  When people gamble at a casino they are constantly winning and losing but most of the money is simply “in play” money that is circulating through the system.

For the casino the wealth comes in through the door with the gamblers.  For the gamblers the wealth comes in and leaves with them, so over an indefinite period of time the gamblers keep most of their money but lose part of it.  Gambling therefore only generates wealth for the casino in the theoretical model.

But because you could win big, gambling may make you wealthy.  This happens for a few people each year.  Out of 100 million or so estimated gamblers, fewer than 1,000 win a million dollars or more each year.  Those gamblers put an estimated $500 per capita into the casinos’ pockets.  They may be wagering, on average, about $4000-8000 per year.  Those are real wagers, not the in play wagers that circulate the money between players.  Someone who puts $1000 of his own money into the casino’s money system could make $30,000 to $50,000 in wagers.

Organized gambling is fine so long as you are only gambling money you can afford to use.  We call this discretionary wealth because it is wealth we don’t need to survive.  We can use our discretion in deciding how to spend it.

When you ask what gambling is, you may not expect such a complicated question.  Philosophers and mathematician have struggled with the question “what is gambling” for thousands of years.  Some have devised very long, complicated arguments.  Some merely go with the definition we offer at the top of our article: “Gambling is the act of risking the loss of something you value on the outcome of an event that you cannot be sure of.”

What is gambling to you?  Do you view it as a form of entertainment?  Is it a means of income to you?  There are, of course, professional gamblers.  Most of these people play card games like blackjack and poker.  Some professional gamblers do make money from playing slot games.

The worst possible gambling games to play are lottery games like Keno and, believe it or not, your state lottery.  In lottery games the theoretical return to player may approach 90% and thus seem high, but the purpose of the lottery is to create a large prize that (usually) only one person walks away with.  In practice large prizes are sometimes shared by a few people.  But the vast majority of people who play a lottery game walk away with nothing or only very small prizes.

Is insurance a form of gambling?  Some people equate insurance with gambling but there is a very precise difference between the two.  Insurance is the setting back of some wealth as a reserve to cover expected losses.  The expectation of loss is based upon analysis of losses incurred for relatively predictable events.  Remember that gambling is based on the outcome of unpredictable events?  Well, insurance does not cover losses from unpredictable events.

We don’t expect the predictions to be 100% accurate in insurance, but we know from experience that a certain number of cars will be involved in accidents every year, that a certain percentage of people will die every year, and that a certain number of home burglaries occur every year.  If enough people pool a small portion of their wealth together they can replace these losses.  In reality everyone is sharing the loss.  Insurance does not in any way create an opportunity for you to become wealthy, not by design.  It is not meant to redistribute wealth the way gambling does but rather to redistribute loss.


Bonus offers subject to change.