It took decades to clearly define gambling enough to regulate it as we do now. Note that pinball was banned in major cities for decades because it was too similar to gambling devices.
And even with those definitions things weren't very clear. I used to work for financial traders here in Chicago. Every year there would be an unofficial snow futures market. It was a fancy way for all the traders and clerks to gamble on monthly snowfall at O'Hare.
But to my delight, the CME eventually created an actual, legal weather derivative for snow. What made one gambling and the other not? What makes any given bet a legitimate financial trade versus pure gambling? Let me know if you figure it out.
My point being that not having a clear definition won't stop us from grappling with the harms. Nor should it. Figuring out what new things really mean is always a messy process.
It's actually somewhat easy... If you are creating financial exposure to an event with no underlying risk to it, and the point is exposure itself, you are gambling.
In your snow example, those guys were gambling on snow for fun. The formal weather derivative - most weather derivatives have parties (usually players in the energy market, sometimes agriculture) who have real underlying risk and aren't entering those contracts to create risk for it's own sake. It's quite hard to get a market off the ground when there is no underlying risk - people purely speculating generally don't generate enough volume to achieve liftoff. Look at Kalshi and the volume on most bets - it's tiny.
The "for fun" part is really important here. Addictive behavior comes from a hijacked dopamine system, into which you slowly get lured in. This makes it applicable to social media, drugs and if you squint, even to broad obsessions.
This doesnt help the gambling distinction though. What activities can take over your neurological reward mechanism? Pretty much everything, like neurotically washing your hands. So you have to factor in societal scale and amount of (potential) harm and this is where the vague debate begins. A key point is a dealer/platform, profiting from your behavior, to exclude neurotics.
A striking observation i made was, that gambling machines have deliberate delays between action (eg pull the lever) and reaction/reward for the brain to create tension and to break it with a dopamine spike. This deliberate design is how the machine exploits your brain and makes you an addict. A similar system is the endless social media feed (or even worse brainrot short videos). You scroll, you see new stuff, you identify content maybe emotionally. Its the same fast stimulus-reward cycle. Meassured in 1-2 seconds, same as gambling machines.
That definition sounds plausible but breaks down in practice. Every Chicagoan has snowfall-related risk. And conversely, a lot of those guys legally traded where they were not exposed to risk. They were just gambling.
I do think it breaks down in practice for the goal of deciding which given trade/bet is gambling.
I worked for market makers. Their theoretical job is to provide liquidity. They are required to always give a price. So if the theoretical cereal maker wanted to buy a wheat future to reduce risk, the market maker has to offer to sell them one. Then the theoretical farmer comes along later and the market maker buys a matching future and they're back to even.
That by your definition is not gambling. But the fraction of trades that can be justified as actually helping hedge a real risk is very small. Some people trading are pure speculators, pure gamblers. But some of the non-gambler participants will trade in ways that are effectively gambling as well.
I think it's effectively impossible to always tell on a trade by trade basis which ones are gambling. We could say it's all related to hedging, as the law does, but I think that's in practice ridiculous. It's a business filled with degenerate gamblers.
So I return to my point that even though there's no bright line, it's still worth muddling though and finding some practical guidelines.
One side of a trade can be a gamble and the other a hedge. A single transaction doesn't need to be classified as a gamble or hedge - it can be both.
As for the market maker themselves - they are definitely not gambling. They are trying to make money while reducing risk to the extent possible. You don't walk into the risk management committee and get an excited response because you increased risk all else equal, right?
Having "underlying risk" to something just means you invested in it before. So for you it's not a gambling as long as you... have gambled before in the other direction?
Buy bunch of call options? Gambling. Buy a bunch of put options for stock I already hold, somehow honorable investing.
It's all gambling. You can dress it to as having a social purpose, but that's not why most people do it - they want the numbers to go up. The stock market is exactly the same - middle class gambling.
Buying small pieces of businesses isn't gambling. The fact the price moves around a lot isn't the point of it, it's just a result of people buying/selling. In gambling, the risk itself is the point.
> You can dress it to as having a social purpose, but that's not why most people do it - they want the numbers to go up.
Too cynical. This disqualifies basically anything you can do with money. If you put it in a bank to get interest you are solidly into the not-gambling end of the scale. And I don't think an index fund is that much more to the gambling side.
Not really. The question is are you working for your money or are you hoping the money will provide free rent for you. If the latter, you're gambling. The only reason it's relatively risk free is because the system has been thoroughly stitched up in favour of the rent seekers.
I'm confused by the ideas you're combining here. Do you think all forms of rent-seeking are gambling or just ones that involve money in a direct way?
The only risk in a bank deposit is up at the "societal collapse" level. Are you really so extreme as to say that's gambling, and if so isn't having money at all a form of gambling?
The point is largely around expectation. Sure, the base case of putting money in a bank is very safe, but the interest on that is not. Factor in inflation and its pretty easy to get negative returns on bank deposits.
If you fiddle with "investments" with the intent of making money without doing anything else, that's gambling.
Sticking money in the bank with the hope that it's still there next time you come back to it is not really gambling. You're just doing the default thing.
> Factor in inflation and its pretty easy to get negative returns on bank deposits.
But that applies to having money at all. That can't be enough to call it gambling.
> expectation, intent
I understand your argument here, but I disagree. Shifting to the bank that offers the best rate is good management, not gambling. Understanding how interest works and being motivated by interest to do bog-standard money storage doesn't turn that storage into gambling.
> without doing anything else
I don't understand how this connects at all. Maybe it reflects badly on you if you want to turn money into free income, but that doesn't make it any more or less of a gamble. It's a totally different axis.
>But that applies to having money at all. That can't be enough to call it gambling.
It is, because there's no choice not to gamble. You have to make choices, and none of those choices are risk-free. The options are on a scale between low-risk negative-return and high-risk high-return. But the risk is never zero - not even in FDIC insured accounts - and there's an element of randomness involved in the outcomes.
That's the point. There's no option to say "I have this store of value, and if I don't do anything with it it will retain its value forever."
It won't. So you're forced into risk assessment and randomness, not just with money but with assets in general.
This is the foundation of the economy. All non-trivial transactions are based on risk/reward estimates, and some parts of the economy can force risk and hazard on others.
It's not just a casino you can never leave, it's a casino where the management use various tricks to siphon money from your assets into their pockets without giving you any agency over what happens.
There's a difference between unavoidable risk and imposed financial risk, much of which is caused by the financial industry itself.
Being killed by a meteorite is a statistical issue. Having your house stolen by a bank during a manufactured recession is a crime, and should be avoidable.
Yes, that was actually happening after 2008. For example:
If everything is gambling then we lost track of what we were doing and need a new word for what we're trying to regulate. The answer is not to give up because it's a spectrum, it's to mark off thresholds.
Fair point re seeking the best return given the same risk profile.
Allow me to refine my point: It's gambling when you seek to increase your risk profile in the hope of gaining higher returns, without actually doing anything else other than "invest" the money.
> It's gambling when you seek to increase your risk profile in the hope of gaining higher returns
I generally agree, but I don't think it's a binary. If an insured bank is 10% gambling then an index fund is 20% and roulette is 100%. And the snow derivative sounds like it's probably above 80%.
> without actually doing anything else other than "invest" the money.
I don't see why this changes whether it's gambling. Investing in a restaurant and starting your own restaurant are both very risky bets.
That fact it's the default thing isn't the issue. Putting money in the bank is not gambling because you have the underlying risk no matter what. Just holding cash has risks. Any time you try to take some value today and turn it into value tomorrow, you have risks.
Because investing conservatively is not gambling. Your definition of gambling is weirdly associated of how money is made, instead of risk making. Nobody uses this word in this way. Gambling is about of risk. It's not about how you are making the money
For example, it's also possible to be actively taking part in the money making activity while taking unnecessary risk. A person can run his own company but recklessly making bets on the loan or spending decisions. So this is the other side of the story where they are gambling and they are actively working with their money.
That's the point. Most financial investment is really putting money into something higher risk to get a (hopefully) higher return. Most "investing conservatively" is just being a bit more wary as to what risks are acceptable.
> That's the point. Most financial investment is really putting money into something higher risk to get a (hopefully) higher return.
It's about risk adjusted returns, not higher returns. If you are not considering the risk assessment you are objectively wrong. Take my previous example, how is actively working with you money by taking higher risk less gambling, than passively investing for example an all weather portfolio which is designed to preserve the capital? An all weather portfolio is firstly proposed by Ray Dalio to be as conservative as possible to hedge against all kind of risks while hopefully get some gain.
> Most "investing conservatively" is just being a bit more wary as to what risks are acceptable.
That's objectively wrong. For example lots of etf is designed to reduce risk by diversifying the investment. Just take your own just put money in the bank example. Suppose you do not live in stable country US/EU, and your country is having high inflation. How is just putting money in the bank with your country's depreciating currency less risky than let's say you invest in a global portfolio or an all weather portfolio? In this case, by not managing your risk profile, you are taking more risk.
I am only giving out 1 example to show that `Most financial investment is really putting money into something higher` is objectively wrong. It's actually the opposite if you look into how portfolio managing works. Majority of the funds managed for the Sovereign state or the rich are about hedging against the risks, it's the opposite of gambling.
> Not really. The question is are you working for your money or are you hoping the money will provide free rent for you. If the latter, you're gambling.
So putting money in my savings account is gambling, but investing in businesses is not.
@hgomersall: emerging from a lucky orifice is in fact the main thing in life if you think about it. After all, we are collectively a computer made of monkeys, and the function it is computing is natural selection. Kin selection is one aspect of it. Everything else - including money and innovation - is window dressing.
Why should having money ever give you a return on that? I ask that question in the context of moral philosophy, not a capitalist society. Surely there are better ways to determine how an individual should live that doesn't typically amount to emerging from a lucky orifice?
If you are an oil company entering the futures market to reduce your risk on oil prices, you aren't gambling. If I enter the market and short oil for fun, I'm gambling.
The stock market isn't gambling if you are just buying equities - you are literally purchasing a small stake in a company. The fact that prices move around a lot doesn't make it gambling per se. If I offered a new price on your house every day, it doesn't make your house purchase a gamble.
Reducing risk is a form of gambling. You're just betting on the "please don't" rather than the "please do".
The point is always the same, you want to end up better off than others that didn't buy what you bought.
If the oil futures purchase turns out to have been worthwhile because price went up due either to production going down or demand up, that doesn’t somehow create new oil. You just get to buy it cheaper than others. You coulda yoloed on spy puts and used that money to buy the more expensive oil at market prices and it's all the same. But you call one gambling and another not gambling, idk, it's all similar to me.
No, it isn't. That's just not the definition that is used by people who gamble and are in financial markets. Words have definitions. No one uses the word "gambling" when they buy insurance on their house. They payoff is contingent, but it's not creating risk for it's own sake.
When I invest I don't really care if I end up better off than others. I'm just hoping to catch some slice of the ongoing economic growth so my at-rest wealth doesn't become devalued by inflation.
Everyone is exposed to those so by that definition nobody would ever be gambling. I was trying to be charitable so assumed the bar was higher in the what-if.
You aren't exposed to football game outcomes, nor dice rolls or cards flipping. I, in california, am not exposed to electricity prices in the northeast. My exposure to wheat prices is extremely small - if I go and bet a lot on wheat going down, I'm gambling.
If you are creating risk that didn't exist, you are gambling.
> toeing the line
I'm not sure that phrase means what you intended to say here. From Wikipedia, [1]: "Toe the line" is an idiomatic expression meaning either to conform to a rule or standard, or to stand in formation along a line.
Guess I learned something new today. I've always thought "toe the line" means something closer to "staying as close as you can to the line without crossing it", if that makes sense.
In certain cases you can use information asymmetry to your advantage. You know something they don't. A good example is any market dependent on public opinion surveys (eg political polling). That data can be hard to find. If you can find it faster than everybody else then you win more often. There is still some chance involved but it's more like poker than blackjack (not a great analogy but you get my drift).
People did this in sports gambling since forever. Professional gamblers would cultivate a source (like a coach) to get inside information to get a leg up. That said - you are still placing a bet based on the best information you have. It's gambling, or else, what other word is for it? Investing?
> My point being that not having a clear definition won't stop us from grappling with the harms. Nor should it.
In the absence of a clear referent or definition, who gets to decide what constitutes a "harm"? What substance do their claims have beyond conveniently spun moral arguments? Why does betting on an event as common and unalterable as the weather require adoption by an incumbent entity and/or regulation by the state to achieve legitimacy?
Those are all questions with a variety of answers historical and current. You could have looked them up. But I take it that you mean them rhetorically, with a point something like, "since I, a smart guy on the Internet can't think of a clear answer in two minutes, there's no point in anybody looking at anything that harms people I don't care about."
But again, I say that shouldn't stop us from grappling with harms. A good example is food safety regulation. Are there clear, perfect answers? No. But we muddle through anyhow, doing our best to balance many factors. And we should.
A jury is relevant to the legal adjudication of harm, not the institutionalization of a certain ideas, activity, etc. as harmful. There are many so-called harms that are arbitrarily declared by agencies as such long before a lawsuit is conceived. Just the same, there are many legitimate harms that states and societies enact as their "right" at the expense of a person's liberty (i.e. conscription, expropriation of property, etc.).
You don't need to take an anti-democracy stance regarding juries.
Also there is a reason why trust in institutions are lower than Trump's approval, institutions are prone to corruptions and enriching the elites while advocating for policies that do not help worker's material needs.
> What made one gambling and the other not? What makes any given bet a legitimate financial trade versus pure gambling?
Legally, it's whether the bet meets the legal definition of gambling as per the legislation applicable in your jurisdiction and any binding case law. There's no universal answer.
But from an ordinary language perspective, the difference is whether it involves an element of skill sufficient (at least in theory) to win in the long run if you possess that skill. For example:
Roulette - generally gambling
Blackjack - usually gambling these days, sometimes not if count counting is feasible
The examples don't hold in most jurisdictions (except for the stock market and if short sells are allowed).
All of the three categories are defined as gambling in pretty much all jurisdictions across the globe. However, they are classified as different types, e.g. roulette is closer to slots than poker is. Then poker can be "cash tables" vs "tournament". The main classifier difference is "game of chance" vs "game of skill", yet there are lots of nuances.
As I stated in my comment, they weren't examples of the legal definition of gambling. What the law says something is can often differ greatly from the every day understanding. The legal definition can also change according to the whims of the legislature while the every day meaning tends to stay more static.
In the distant past of 2011, offering online poker to Americans, even from overseas, brought serious Federal prison time. That was before the lobbyists got to work.
That entirely depends on the asset classes you invest in. Proper stonks? Sure, that's not gambling. But as soon as you enter the fun world of derivatives and daytrading...
It's a common refrain, but I don't agree that it's correct. You're essentially boiling the definition down to the degree of risk:
If (risk > some_threshold) then gambling = true; else gambling = false;
With derivatives your risk is often greater than with traditional stocks. But that's not universally true. If you invest in a startup your risk is massive, whereas if you invest in a well diversified and low leveraged portfolio of derivatives your risk might be substantially lower.
And in any case, so what? If you place a small bet on every number of a roulette table your risk is essentially zero: you'll simply make a guaranteed fixed loss of 5.26% on every spin. On the other hand, if you invest in the Vanguard Total Stock Market index tracker, you might hope to make around 8 to 10% per year, but in some years (e.g. 2008) you might make a big loss (37%), so the risk is significant. Yet I think most people would agree that the former is gambling while the latter is not.
The important factor isn't how much risk you take on, it's whether a sufficiently skilled person can achieve a positive mathematical expectation over a series of similar bets.
I think a more effective definition involves socially productive activity. If support the creation of value to others in hopes of getting paid back over time through getting a fraction of the value created, that's investing. If I put money into something volatile in hope that I get more money out, that's gambling.
Alternately, you could frame it in terms of positive sum vs zero/negative sum systems. The former is investing, the latter gambling.
> You're essentially boiling the definition down to the degree of risk
Indeed, but I'm not alone in making this decision, it's a common thing in the finance world, known there as "accredited investor" [1].
Generally, the distinction between gambling and investing (a fine line that especially Kalshi and Polymarket are attempting to walk, by the way) often is "can the investor / gambler influence the outcome of the investment by knowledge". Say, a stock like GME... the initial analysis by DFV clearly was investment, based on very thorough research. The Army of the Apes however that m00ned the stonk? That was pure degenerate gambling, with the point not being profits but hedgefunds closing down.
That's fair. A lot of regulation seems to work this way: first you recognize a real harm, then spend years arguing over where exactly the boundary should be
And even with those definitions things weren't very clear. I used to work for financial traders here in Chicago. Every year there would be an unofficial snow futures market. It was a fancy way for all the traders and clerks to gamble on monthly snowfall at O'Hare.
But to my delight, the CME eventually created an actual, legal weather derivative for snow. What made one gambling and the other not? What makes any given bet a legitimate financial trade versus pure gambling? Let me know if you figure it out.
My point being that not having a clear definition won't stop us from grappling with the harms. Nor should it. Figuring out what new things really mean is always a messy process.