The Magic Economics of Gambling

  • Published on: 30 October 2018
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    References:
    [1] https://www.statista.com/statistics/253416/global-gambling-market-gross-win/
    [2] http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MET_2017.pdf
    [3] https://twitter.com/wendoverpro/status/1054533498722111488
    [4] https://www.nber.org/papers/w18237.pdf
    [5] https://twitter.com/wendoverpro/status/1054533837328281600
    [6] https://twitter.com/wendoverpro/status/1054534236642795522
    [7] http://www.its.caltech.edu/~snowberg/papers/Snowberg-Wolfers%20Risk%20Love%20or%20Decision%20Weights-NBER.pdf
    [8] http://www.football-data.co.uk/blog/favourite_longshot_bias_tennis.php
    [9] https://economix.blogs.nytimes.com/2010/06/02/the-bp-spill-and-the-favorite-longshot-bias/
    [10] https://ac-els-cdn-com.ezproxy1.library.usyd.edu.au/S0167268114002194/1-s2.0-S0167268114002194-main.pdf?_tid=6aac86b2-7e4a-46d0-bf4d-5ab70e8db750&acdnat=1540355242_b9bcf6d0549207112968a3467b39a9a0
    [11] https://www.hbs.edu/faculty/Publication%20Files/08-061_17c22e32-fe06-4b4a-8b5e-e09227fc8104.pdf
    [12] https://www.commissions.leg.state.mn.us/ladder/120511prizelinkedsavingsFAQs.pdf

    Animation by Josh Sherrington
    Sound by Graham Haerther (http://www.Haerther.net)
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  • Runtime : 11:24
  • gambling magic economics econ money lottery casino roulette odds loss aversion utility function interesting explained explainer video essay wendover productions half as interesting animated educational

COMMENTS: 40

  • Brett DeLong
    Brett DeLong   1 days ago

    Insurance isn't about gambling. It is about minimizing individual risk by spreading that risk over a large pool of people so each individual will lose a small pre-defined amount (their premium).

  • Stickman
    Stickman   2 weeks ago

    Learn the difference between a single event and a recurring one.

  • Spencer Pain
    Spencer Pain   3 weeks ago

    Moral of the story: rational humans don’t understand math

  • RobosergTV
    RobosergTV   3 weeks ago

    "perfectly intelligent people will take that deal", excuse me what? Intelligent people don't play gambling, only ignorant and uneducated do.

  • Jackson Ayres
    Jackson Ayres   3 weeks ago

    It's worth noting that if you start with 100$ and play indefinitely, you won't actually leave with 100$. You will leave with 0$ because in an infinite sequence of plays, a sequence of losses will result in you losing all of your money eventually. If the house isn't assumed to have an infinite amount of money, then a string of successes that results in the house losing all of its money can also occur, but this is much less likely. This will cause to to stop being able to play. (You can still bet 0$, so the sequence is still infinite, you just will never earn money either.)In essence, the statistics of gambling only works out so cleanly when both parties have infinite funds to pull from, which is (almost) never the case. The statistics, however, are still accurate for predicting the outcomes of individual or small sets of plays, but when attempting to analyze and predict the behavior of the system on a large scale, you need to take into account the probability of exhausting your funds.In the same vein, when choosing between a sure $5 and a 80% chance for 6.25, they're only worth the same when you have an infinite number of attempts. With only one, there's a 20% chance of having nothing if you take the latter option - which means that in many cases, it won't be the one you want, since it's often better to have less with surety than a possible nothing.

  • Papa Tango
    Papa Tango   1 months ago

    6:08 I would choose 100% chance of $5. Theoretical probability will not be accurate because every spin is independent.

  • Papa Tango
    Papa Tango   1 months ago

    5:38 I would choose 100% chance of $5. Theoretical probability will not be accurate here because every spin is independent

  • Papa Tango
    Papa Tango   1 months ago

    2:53 I would choose 80% chance of $6.25 because every time you play, it resets or in other words every time you play is an independent event. Calculating theoretical probability after 5 spins would result in $25 either way. In reality it is likely that the 80% option would end up with more money due to all spins being independent from each other.

  • Dwight House
    Dwight House   1 months ago

    "80% chance of $6.25" is not equivalent to "100% chance of $5" in the real world because a given individual cannot take an infinite amount of gambles. Almost all scenarios where people are weighing options, they have a limited number of times they can perform a given choice. Additionally, the individual is far less concerned with the overall societal balance than their own balance in a given gamble. People, on average, will try to achieve the best odds for themselves and their family at the time over anyone else.

  • Cneq
    Cneq   1 months ago

    To be fair either I'm really lucky or what but I've won a lot at .4% chances, 1.2%, 2.2% and even all the way down to .3%. Of course it eventually was all lost but the reason it was lost because I decided to usually go bigger at more equal odds. If you're going to gamble go for low, win, cash out instantly, no other way or you're going to hurt.

  • Ps B
    Ps B   1 months ago

    With casinos, you forget to mention the economic value of the fun of gambling or the experience of it.

  • RandomGuineaPig Aviation

    perfectly intelligent people go to the roulette table every day Yea I don't know 'bout that...

  • Kim Jong Un Lol
    Kim Jong Un Lol   1 months ago

    Whish my dad watched this so I don’t need to work hard on getting something

  • boeuf3000
    boeuf3000   2 months ago

    The insurance company analogy works, but insurance companies can make excuses up to not compensate customers.

  • Connecticut Ball
    Connecticut Ball   3 months ago

    I picked 80% chance of $6.25For the rest, I picked the 100% chance of $5.00

  • SuperMickyG
    SuperMickyG   3 months ago

    You've got the payouts on the horses wrong. The 200/1 shot pays 200 dollarydoos for every dollarydoo staked, not 300 dollarydoos. The odds of the 2/1 horse would also not be better than 2/1. You are referring to Favourite-Longshot bias here, which does exist, but not to the extent that it provides a negative margin for the house.

  • Henryk Gödel
    Henryk Gödel   4 months ago

    Most people are paying for the entertainment of the experience that experience being the chance to win money.

  • Golf
    Golf   4 months ago

    casino exists to laundering money

  • Avindu Bandara
    Avindu Bandara   5 months ago

    Guys check this out... You will surely be amazedhttps://payhip.com/b/EDPj

  • Xu Huiming
    Xu Huiming   6 months ago

    I'm somehow the opposite on the $5 thing

  • DevonC90
    DevonC90   6 months ago

    Ned Flanders was right.

  • Zhi Han Lee
    Zhi Han Lee   6 months ago

    7:30 Think the issue about plane crashes might also depend on what you use as the denominator for calculating its probability. If it's all the flights in the world then the probability is probably low, since the stakes are high (there's quite a lot of delay in evacuation after an emergency occurs in aviation, compared to other transport modes, due to things like the need to dump fuel and find a diversion airport, and during that delay the aircraft might no longer still be in 1 piece e.g. SR111), leading to a highly-regulated industry. However if the denominator is only the planes that have been in an accident than I imagine the probability is higher. I don't recall seeing as frequently, among other transport modes, accidents with a ~100% fatality rate e.g. JA123, AF4590, QZ8501, MS604, JT610

  • The Stigmeister
    The Stigmeister   6 months ago

    2 to 1 odds does not pay out $3 for $1 bet:https://youtu.be/7cjIWMUgPtY?t=397It would double the bet, so it would pay $2Reference: https://en.wikipedia.org/wiki/Odds

  • Krik
    Krik   7 months ago

    Best gambling qoutes on Instagram @gambling_circle

  • Prateek
    Prateek   7 months ago

    This video is filled with inaccuracies. Behavioral economics is difficult to grasp intuitively, but you made some pretty incorrect analogies there

  • Lewis Gray
    Lewis Gray   7 months ago

    200/1 odds returns 201 for each dollar not 300. 6:43

  • ХОРОШО
    ХОРОШО   8 months ago

    Casinos not just sell loses, it sells entertainment.

  • J L
    J L   8 months ago

    I didn't hear mention of entertainment being a motivation for patrons. I know I will lose money gambling but the thrill of winning has a value to consumers.

  • cormac23432342
    cormac23432342   8 months ago

    1$ at 200/1 does not return 300$. It returns 201$

  • Paul Page
    Paul Page   8 months ago

    Casino gambling and lotto are rigged games that always favors the house.

  • Clout Academy
    Clout Academy   8 months ago

    This is a stupid explanation of gambling hes leaving out so many factors juat by saying essentially you lose 94 cents for every dollar you play. Btw playing black or red is a suckers play on roulette. You play 3 numbers every spin they pay out like 38x

  • Pat
    Pat   8 months ago

    if you go see a movie you will loose the 10$ but get 2 hrs of entertainment. if you gamble 10$ you could win more, break even or loose all the 10$ all the while you are entertained and prob get a free drink.