by Divyam Rastogi
The initial thoughts after hearing the word ‘Gambling' are always about luck and greed. If it's our day we are going to win a fortune or else we are going to lose it all, and if we keep on betting, we might even lose what we have earned before. But why is it always that all these casinos and lottery clubs make a profit, irrespective of losing or winning a bet and irrespective of losing thousands of bet a day?
Understanding gambling is a complex concept of behavioural economics. According to conventional economic rules, casinos should not exist. This is because conventional economic rules assume that humans are rational, meaning that no human will put his/her money into something which does not give him/her an amount that is equal or greater than the principal amount.
If there is a choice between having a 100% certainty of winning $5 and having an 80% certainty of winning $6.25, what will you choose? Think about it for a second, you would probably choose the former option as its safe, but in practicality, both of the options are the same as 80% of $6.25 is $5. You choose the first option because it was safe, but the real psychology behind this choice is that people don't want to lose, that is, the negative effect of losing a certain amount is greater than the positive effect of winning a certain amount. People have this cognitive bias that in general, they dislike losing a given amount of money more than they like winning it.
Now how these casinos trick you is by giving you such an offer where the amount you bet is quite low and the return you get is massive for instance if there is 0.5% chance of winning $1000, a lot of people will gamble because anyone would rather like to multiply his/her money by 10 or 100 folds instead of just doubling it once, that is they want some colossal win rather just earning another cup of coffee. Now mathematically this is the same as the above two options as 0.5% of $1000 is $5, but here the reward is monumental, that is it has a high risk and a very low probability and the reward is towering. The human psychology behind this is people overweigh the impact and chances of extremely low probability events. Having a 5% chance to win 100$ gives more excitement to anyone rather than having a 100% chance to win $5. This is how the lottery system attracts gamblers. They give you greed of winning a massive amount with high risk and a very low amount and a meagre probability of winning, as the probability is low, you are forced to try end number of times, a simple example will be-
Imagine I have a dice, and I offer you a $1 bet. If you roll your number, I pay you $5 (5 times of your bet). Let's assume this is a fair dice, so on average, each number comes up as frequently as each other. What this means is that theoretically, if you place six bets, you will win once and take the $5 prize. But you will have to bet $6. So, I will end up with $1. This is how gambling works as a business but on a much larger scale. It is always possible that in any one bet you will win and take my money. But I know that the more bets I take, the closer the outcome will be to the theoretical average, and I will make my margin just as in the dice bet. Therefore, for any casino, the biggest threat isn't that people are not winning but it's when they stop playing it.
At the end of the day, the house always wins because casinos are businesses. They have to turn a profit to stay alive. While the ecosystem of a casino serves the end goal of taking gamblers' money, players can come out on top by quitting while they're ahead. That, of course, is easier said than done.