Can fund managers capture money that is now gambled away?
Investing versus gambling
A clean, though imperfect, distinction between investing and gambling is:
- if the expected return is positive, it is investing
- if the expected return is negative, it is gambling
An investing view of gambling
I’m not one of those people who believe that playing the lottery is irrational. I think it’s silly, but not irrational. The expected return of the UK national lottery is approximately -54%. But for a mere pound someone gets the dream of extensive wealth. Playing the lottery is no more (and no less) irrational than paying to see a James Bond movie or to read a romance novel.
State-run lotteries are essentially an alternative form of taxation since the profits go to the treasury or to charities. However, they are a very regressive tax — the wealth dream is most compelling to the poor.
Other forms of gambling are even less useful. They are essentially just a mechanism for increasing financial inequality.
A gambling view of investing
If gambling means that you should expect to lose, then why would anyone gamble instead of invest? Investing is boring.
It is boring because:
- results take too long
- big results are out of the picture
The lottery is compelling to so many because of its immediacy. It doesn’t take years. Rather something might happen in a few days. And that something might be big.
An investment lottery
It seems to me that the fund management industry could gain some business (and be socially useful) by creating some products that appeal to gamblers. What I have in mind is something that would have aspects of a lottery but have a positive expected return.
There are premium bonds in the UK, which are along the lines that I’m thinking. However, premium bonds are not very exciting either in their returns, or in their lottery aspect.
Money’s just something you throw
Off the back of a train
from Long Way Home by Tom Waits and Kathleen Brennan
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