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  1. these might be covered in prior comments: the 200/1 odds do not return $300 on a $1 bet, it’s $201. And when you say “… make more money on the 2/1 horse” vs. the 200/1 horse, the word “make” is wrong, it should be “returned”. You are still going to lose in the long run. It’s accurate in that very high odds horses are very bad bets, but the favorite is also a bad bet, due to your prior analysis that ‘people dont like to lose’, so they tend to bet down favorites *below* what they should be. If you could actually make money betting favorites everyone would do that and drive the odds lower, below break-even. The only chance of making money at the racetrack are at odds above the favorite and way below the ‘long shots’. Plus there would have to be no take-out from the track. Only betting exchanges make that possible.

  2. As an insurance underwriter with 5 years of experience, I can safely say that insurance IS legal gambling. You’re just given tools to “read the cards” (loss history, construction type, inspections, applications (that are legally binding), historical lost trend data, and our favorite “law of large numbers”. With that said, the government does regulate insurers, so if we are profiting too much we are legally obligated to reduce our rates. The rate increases you see each year is due to inflation and the local experience of all risks in your local area.

  3. Insurance has nothing to do with gambling. It’s purpose is to spread the risk of what would otherwise be a devastating loss to one person across a large pool of people. Assume one person out of a group of 250 will have a $1000 loss. Each person pays an easily planned for $5 premium to an insurance company that in turn agrees to assume the risk for that loss. The insurance company collects $1250 in total, pays for the $1000 loss, pockets $250 for their trouble, and everyone is happy.

  4. Literally first sentence is wrong. “Conventional economic rules” don’t say casinos shouldn’t exist. It’s called Risk Aversion, and some people that gamble are risk lovers, meaning they get pleasure when taking risks. In other words, casino’s offer a service for people to experience that, and the price for it is the difference between the gambling premium and the expected value for customer.

  5. Who is visiting a casino, or in general is gambling to win, already has lost before they even started.

    Gambling/Visiting a casino is a leisure time activity which should provide fun and if you just take, let’s say 1k$ and treat it as “Ok, that’s the mone I will spent to have fun” and lose all of it, you still reached your goal. If manage to partially, or fully keep it or even have more in the end, that’s just a nice topping for the fun 😉

  6. (1) Pure random games – i.e. roulette
    (2) Semi random+skill games – i.e. blackjack or stock options.
    95% people loss money to 5% people because of the difference in skill levels. You can still “earn” (not win) money in the casino even the house has advantage. Or you can make money in the stock market if you are good in mathematic and psychology and the game itself.
    Also I recalled a movie scene (exact name forget) before the manager kick out some professional blackjackers from his casino, the manager said “you can win money from my casino but you cannot earn money from my casino”.

  7. you state that the chance is the same when repeating the gamble an infinite amount of times, but if you give someone the chance to infinitely get 5 dollars at 100% success rate, that invalidates the point of a gamble

  8. gambling works because everyone has seen star wars and han solo is a badass like everyone wants to be and han solo said never tell me the odds

  9. This makes it all the more pathetic that Trump failed at running casinos, the most dummy-proof business out there.

  10. Insurance makes sense if there is a chance of going totally bankrupt in a “worst case” scenario: liabilities from accidentally putting someone in a wheelchair for life can easily reach millions. Same goes for getting an illness that requires very expensive treatments. In those cases it makes sense to pay for insurance, because the worst case scenario is unbearable. Insurance is completely useless though for smaller things: phones, TVs, to a certain degree even cars. In those cases the statistics just don’t make sense for the buyer (you).

  11. Right… people CHOOSE to buy car insurance… okay… What country is it legal to drive without car insurance? Car insurance is basically driving-tax. Also, if you make enough claims on your car insurance, they ban you.

  12. Aren’t the two options only the same if you run it an infinite amount of times? Sure, 100% chance of getting $5 is the same is a 80% of $6.25 but that is ONLY if you run the experiment an infinite amount of times. If someone asks me ONE TIME which one I’d like, then the $5 option is better.

  13. The biggest problem I have for this video is that there’s an implicit assumption that people play the game infinite amounts of time. The equivalency of the values only applies in infinite cases, but what if you can only play once? Or 4 times? If you told people “I’ll give you $5 or you have a 1/200 chance of getting $1000” I bet you would see no where near he 33/66 split like you have in the study.

  14. Are we not allowed to pay for psychological stimulation? Then what is consumerism? Gambling is just another product, its establishments the storefronts. The precise cost of losing a round is the market rate for the experience. People who gawk at responsible casino-goers yet themselves indulge in any form of consumerism or entertainment are misguided.

  15. I never buy lottery tickets until the prize gets insanely large, like $500m+, even though a $20m prize would also be life changing. So it’s not a matter of the odds/return per se. I look at it as taking my $20, giving $10 to a stranger, and giving $10 to the government to hopefully help fix a pothole. And, I get the entertainment value of dreaming about the big win. I place little/no value on the actual chance of winning.

  16. “Conventional economic assume humans are rational.” -> that’s why I always thing this subject is useless.

  17. Insurance exists to reduce variance. A large sudden loss is potentially devastating. A bunch of small, planned for losses is not.

    EXCESSIVE insurance is stupid. Paying a small amount to avoid the risk of ruin is intelligent.

    The entire premise of this video (that the services offered by both insurance companies (risk of ruin mitigation) and casinos (entertainment) don’t exist is a fundamental lack of thinking from an otherwise good channel

  18. gambling is entertainment. They aren’t buying the expected return, they are paying for the excitement

  19. I usually like the wendover videos, but the way the maths are explained in this one are just wrong and I do not think it does well in explaining.

    Given a 1 time choice between 5$ or 6.25$ with 80% chance is not equal. Both mathematically and psychologically. Saying afterwards “if you did that infinite times is just the same” is a fallacy as it breaks the beginning premises, meaning that the conclusion is invalid for the presented premises. If he had flipped it around saying “if we present an insurance company with the options of either just selling a policy which will never get activated for 5$ or a policy that gets activated 20% of the time but costs 6.25$” then of course the insurance company would say “meh, that’s 50/50” because they are the ones playing with the big numbers. If you asked me instead if I would prefer a button that would do those, I’d also say it doesn’t matter. But if you tell me “choose now: 5$ or an 80% of 6.25$” I’d take the 5 no questions asked. It’s not about the loss, it’s weighing risk vs reward in a possibly 1 time thing, and they are not equal.

  20. $5 – 100% chance or $6.25 – 80% chance. Yes, in theory is the same ONLY If you play infinitely. Who the fk has infinite amount of time to play?

  21. 6:40 if you put a dollar on a 200/1 horse you don’t win $300 if it wins. You win $200 and get your $1 so in total you get $201

  22. According to this logic, amusement parks should not exist. You give them money, they rock you up and down for a while then send you home without your money. But people are irrational and are willing to pay money for getting rocked. With casinos, it’s similar. They offer thrilling experience and you pay them for that if you’re into it.

  23. The $5 thing vs $6.25 makes zero sense. In theory you would always choose the $5 100% option as it has a zero % risk of ruin. Who the fuck would introduce variance for zero equity? That was probably the stupidest example of someone trying to sound smart I’ve ever heard

  24. 6:54 am i the only one that thought 2/1 means 3$ gain for a bet of 1$, but 200/1 means 201$ instead of 300$??? I mean you win that 200/1 bet which for every dollar you bet you receive 200, plus the initial bet of 1$. I haven’t saw this thing in the comments, probably some just went over it, but some actually believed it. Which makes me think how did they perform in math classes

  25. “all forms of gambling are set up to always make money for the house”

    Shortsellers: wait what? How the duck?

  26. So, I would argue here that actually, the marginal utility of a dollar usually goes down the more of them you already have. Gambling is perverse but insurance is not, as most of the time optimal economic strategy, as much as some people might tell you otherwise, is not to gamble your life savings on starting a business or leveraging stocks, at least not unless you really have enough money to fund those things well, but to do normal things. Losing half your money is financially ruinous, but getting a bit more money is not equally financially beneficial.

    Now at smaller values, when the amounts aren’t lifechanging, I will submit that people can be pretty irrational.

    There are two situations where gambling makes rational economic sense.

    The first is if the marginal utility of wealth is actually increasing with wealth. For example, if you currently have 3 tires, it is rational to gamble one of those tires for a fourth so that you can actually move your car. You’re not really worse off having two tires than three either so you’ve got almost nothing to lose.

  27. Not all insurance companies make a net profit off the people they insure. What some of them do is use that money like a bank.

  28. Economics is a field which takes the “justice” of capitalism as a given, and then tries to justify things… No one would actually think that the modern economy is based around people being rational, and Business school teaches you how to use that for profit… Of the physical sciences, they are the Religious-science (using the tools of the trade to construct a ‘plausible’ reality) and Engineering of the economic world, respectively… Sucks that the true Science of business (the field where you question/critique things to determine how they work) is pushed into the socially forbidden, by those in power who wish to keep it…. Seems that story has been told before… Maybe where a bunch of elite people saw the threat that some idea posed to their power, and thus made it heresy?.. I duno…… But, seriously, how can any scientist (or person who knows of the scientific method) believe a theory (esp. so fervently) without studying its greatest critique(s) (e.g. KM’s “Capital”)? ….

    Those in the status quo will look at anti-vaxxers with frustrated disbelief, yet not see how they too often only take curated information from particular (powerful) sources, never actually listening to (/reading for themselves, ideally) critiques based in evidence (hearing them only spun as ridiculous heresy).

  29. A lot of people are against gambling, and I get it. But, I usually take $100 to the casino with me. Most days I can play for an hour or two and come back with something or nothing at all. Some days I break even and some days I win. You could go out for a nice dinner and spend the same amount of money. Or people go to a bar and could that much or more with nothing to show for it. I get entertainment, in some cases free drinks and the chance to win something. I prefer to win to lose, but I consider the whole thing entertainment.

  30. One thing that often gets overlooked in gambling analysis is the VALUE OF ENTERTAINMENT. Gambling can be entertaining, and that hugely factors into the mix. Especially for conscious low-stakes gamblers.

    To take the example of betting 1 dollar at roulette: I might lose 5.2 cents on average, but I GAIN 1 minute of excitement. If I spend 2 hours gambling this way I spend slightly over 6$. Compared to a movie ticket that is a steal. Therefore by this argument I could doubt the whole entertainment industry.

    Of course this argument is only valid in low-stakes situations. And it takes self control to stay there, gambling addiction is a serious problem. But I also thinks that it explains why lotteries work so well. I might loose ~2$, but I gain the excitement that the possibility of the win brings with it. I do understand the odds, I do not expect to win…if I play I do it for the excitement. Any monetary returns are purely incidental.

    So any economic analysis of gambling should include the entertainment factor because life is not only about money.

  31. you have clear error in your rationality. picking 100% to get 5 dollars or 80% to get 6.25, your only giving the option once. when an option presents itself ONCE the rationale behind it is completely different.

  32. here’s why they do… you can’t legally drive a vehicle without insurance… so it’s more like tax with benefits.

  33. 0:26 perfectly intelligent? o.0
    Now that we’ve discussed the economics of gambling, let’s bring in that video on what happens to people when they do win..☠

  34. I go to casinos to have fun, not to make money. I think it’s no different than I went to a video game arcade when I was a kid. It’s the cost of entertainment.

  35. Why pay 100$ to get 94$? Because the enjoyment of gambling and the possibility of winning a life changing amount is worth more than 6$ lost over time…

  36. If you played infinitely with $100 you would leave with 0 regardless of odds. Risk of ruin is a thing.

  37. insurance isnt a gamble. if you had enough money to self insure, you maybe dont need to buy insurance.

    but who has millions of $ to cover possible liabilities involving injuries, casualties, damage to property etc? its a safety net to avoid complete ruin by any 1 individual.

  38. car insurance isn’t a good example because it’s a legal requirement to drive. gambling at a casino is not required by law

  39. Don’t forget money laundering. Money goes in, (some) money goes out. You can’t explain that (to the IRS).

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  41. 1:00 If you came with $100 and played infinite times on an even odds game you would leave with zero dollars, not 100. I mean technically you would never leave…. but if you did, it would be zero.

  42. “financially cant raise interest rates”

    hahahahahahahahahhhahahahahahahha thats the funniest joke on this channel yet

  43. When the odds get sufficiently low, I have learned from video games to run away. Its just not worth the time

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  46. Also, the insurance principle you make applies in the real world, but only to very wealthy entities. In the UK, for example, you don’t need car insurance- you can post £500,000 with the Accountant General and you have third party cover on any vehicle. Nobody really does this because that £500k is not the limit of their liability, and even in a normal bank account you could earn £5,000 a year of interest (very few people pay more than this to buy fully comprehensive insurance). Some of the Arab playboys self-insure when they come to London because they are driving super high end cars, and they only need to deposit the money for the month they are here. British Telecom, which has a fleet of tens of thousands of cars, self-insures because they have worked out is cheaper than buying a fleet policy. Likewise, Crown bodies (such as the police) don’t insure because it is cheaper for them to pay out when they have a loss than to find a syndicate or whoever willing to take on their risk profile.

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