Also online, state-sponsored lotteries. I'd consider lotteries (in general, not just online) more significant in terms of taking wealth away from people who can least afford it, and for no inherent legitimate purpose. (Lotteries fund education, but there are better ways to do that.)
Even that is debatable. In just about every state, when they added a lottery "that funds eduction", they reduced the state contribution to the education budget by exactly the amount that was being added by the lottery. So while technically yes it goes to education, in reality it does not.
Not in a strictly expected value sense, no. It's never going to be a rational choice from an financial point of view (i.e. there is always something else you can do with the $5 with better expected returns).
But if you get some other value out of it you place at least $5/wk utility on, sure. Maybe you get more utility out if it than a movie a month, or whatever.
I'll buy the occasional $10 scratcher, and then wait like a week to scratch it all off. The $10 is worth getting to ponder what I'll do with my massive windfall for that week!
Already maxing my ROTH and 401K so I figure it's like $80 a year well spent to entertain the phantasy.
That depends on the probabilities involved. If you send me $5/week, I might decide to give you $10 million one day. I don't have $10 million and I don't think I would want to give it away if I got that kind of money, but it could happen. Are you interested? Do you think anyone would be?
Lotteries are rational for the same reason that insurance is rational.
Insurance on the face of it is irrational -- insurance companies make money, therefore buying insurance is paying a premium above what the expected reimbursement is over the lifetime of the insurance. It's a reverse lottery; the expected outlays exceed the expected returns.
What you pay the premium for in insurance is to reduce downside variance.
What you pay the premium for in a lottery is to increase the upside variance.
yes i agree with these sentiments but the statistics involved are vastly different. The probability of a life-altering event is a lot greater than winning a lottery.
Reverse solidarity is not a problem. Its that lotteries are economically inefficient: what the 1 person gets is less than the sum of the parts, that is truly destructive.
OTOH, people pay for the dream of winning the lottery, which has some value, adicts withstanding.
While there is some amount of speculation, it represents a small portion of the entire financial space. If you sincerely hold this view, you should take a closer look at the purpose of financial instruments and markets.
I do not believe this counters the OP's point. While the core purpose of financial markets may be beneficial vehicles like hedging and price discovery, the fact that the pragmatic outcome of the law is to leave wall street as one of the only outlets for "legalized betting" cannot be ignored.
There is a sister post that in trying to argue against this only seems to support the point. "a house that always wins"; as has been echoed on HN ad infinitum, _don't stock pick_, (Edit; child is correct, this is more about day trading, but the broader advice probably still holds to some extent) because if you do, you're the dumb money handing it over to the HFT firms. So even if the intent is not for wallstreet to be a gambling house, if it looks like a duck and quacks like a duck and benefits from regulatory capture like a duck...
Gambling in the prediction market for the time-value-adjusted expected profits of a company is allowed due to the historical fact that stock markets used to be the way to raise capital for companies. I have only seen Tesla do this in the last 30 years (I'm sure there are others, but it is rare for a list company to actually sell stock to raise capital for building things). We should allow gambling in other prediction markets for things we would like to know about. Say the average surface temperature on Earth in 2100.
For those who believe in efficient markets, or markets that are rigged by hyper-intelligent people against the average investor, I'd like to call their attention to a bit of history recalled by Matt Levine in his column today:
"Google announced that it was buying a private company called Nest, for instance, and the entirely unrelated stock of Nestor Inc. (ticker: NEST) was up 1,900 percent"
To be precise. I do not in any way believe in perfectly intelligent or omniscient markets. I do believe that large professional financial entities have mastered short-term trading to force things such as margin calls and other behaviors that an individual such as myself has no real tools against. This is what I mean when I say "the house wins" not that the market is in any way always correct. I assert that in any situation where an individual could make a bet, they are inherently competing in an uphill information-and-tool-asymmetry battle against far better equipped entities.
This explanation should be very familiar to those who have frequented groups like bogleheads that drink the indexing koolaid. (I admittedly do, as one could probably tell from the above)
An underlying stock market is useful because it allows companies to raise capital to take risk. But many of those trading tools are just vehicles for speculative trading.
When I buy options contracts as a trader, I'm speculating the price will go up or down. I'm not adding anything productive to the economy. For me to win, another trader must lose.
Sure, capitalists will always say "I'm providing liquidity", and I'm fine with that, there is some value in that.
But I'm still gambling on an outcome in a zero sum game. What is the purpose of anti-gambling laws? To protect the common man? But the state is okay with you losing everything on stocks? The point is its an unjust hypocrisy.
Gambling is a useful analogy but what is missing is that a person creating a business or buying a house, fixing it up, and flipping it are taking a risk on /profit/ but fully intend on creating real value whether they end up losing money or not.
That's quite a bit different than laying a bunch of money on red at a roulette table. The only value created -- the fun of the gamble itself -- is completely intangible and immediately destroyed.
Of course, there's a spectrum there, too. How much value is created by the efficient allocation of capital in our markets? Lots, it can be easily argued. Well, what about the marginal micro-transactional allocation in HFT? Well, maybe not so much.
