I have been writing about games recently: what they are, why we play them and common confusions from not understanding the importance of volatility. A category of game that is worth further investigation are those that falling under gambling.
Definition
Gambling:
- Playing games of chance for money / Betting on an uncertain outcome
“gambling on a toss of the dice” - Take risky action in the hope of a desired result / taking a chance (often) recklessly
“If you don’t back up your data, that’s gambling”
“I’m gambling that the new store will be a success.”
I find these two main dictionary definitions to be confusing enough by themselves, but the fact they both have very different meanings can lead to even more confusion.
Is money intrinsic to the game?
If money is not intrinsic to the game, then I would say you are gambling on the game rather than the game itself being gambling e.g. betting on the result of a football match or the number of goals. Football itself is not gambling. If you play golf for money, you are gambling on the game, but golf is not gambling.
In contrast for poker, betting is intrinsic to the game. Attempt to play poker without chips and the game is reduced in skill, becoming like snakes and ladders. Chips are to poker, what goals are to football. Poker tends to be called gambling while golf does not, mainly because the monetary aspect is intrinsic to the game. Here lies an obvious confusion in the definition of the word.
Game of chance
If we go back to the games categorisation, we can observe an important issue.
Volatility?
The first thing to note is that gambling is associated with high volatility. Few people would call playing chess gambling and no-one engages in low skill low volatility games.
Does high volatility imply gambling? It is not that simple. We saw above that it is the addition of money that is critical.
Skill?
Neither definition specifies whether the game or “risky” action involves skill. I think this looseness of definition illuminating. I would say that gambling commonly implies a game of low skill and random outcome. We have seen before how high volatility often leads to the incorrect conclusion that the game is random and low skill (Game 3) We now see a similar issue with games described as “gambling”.
Let’s compare two games:
Both games are referred to as “gambling” but bear crucial differences. Poker has high volatility, but I would not call it a “game of chance” so does not even fit the original definition. However, poker is commonly described as gambling or a gambling game.
Risky vs reckless
In the above definition, both risk and reckless appear and, in common usage, can be used similarly.
However, they are very different concepts.
Let’s take a golfing example. You were the last to play on the last day of the Masters, now standing on the 15th fairway, 192 yards from the flag. Your playing partner is 2 shots ahead of you. You go for the pin.[1]
Risky? Sure
He had not managed an eagle in his previous 450 holes at Augusta
Reckless? Not at all
He needed that eagle to make the payoff which he subsequently won for his first major.
Conclusion
The problem in the definition of gambling is that it does not differentiate between an act of random chance and something which involves a great deal of skill i.e. a non-deterministic outcome with a monetary consequence.
Again we see that this uncertainly in the outcome is misinterpreted is random (logic error) and therefore there is limited skill involved (logic error) and that risk is in fact often reckless (logic error). These confusions are similar to what we have seen in games generally, but still makes them hard to spot.
[1] http://www.golf.com/tour-news/2017/04/09/watch-sergio-garcias-eagle-15th-masters
Applied Macro 