Ever since there have been human beings, human beings have gambled.
Dice carved from the ankle bones of antelope have been found in prehistoric tombs. The ancient Egyptians played a game calle datep, which involved guessing how many fingers someone was holding up. The classical Greeks and biblical Jews had forms of dice, and the Romans bet heavily on gladitorial fights and chariot races.
At various times in history gambling has been almost universally condemned by religions and governments alike, but it has never been eradicated, and today, legalized gambling is making a comeback all over the world. Witness all the various national and provincial lotteries you can play in Canada, and the casinos that seem to be sprouting up like mushrooms.
If you’re buying lottery tickets and gambling at casinos just for a bit of fun, that’s one thing; but if you’re buying lottery tickets and gambling at casinos as a means of making money, there’s something you ought to know: every form of legalized gambling, without exception, is a bad–in many cases a very bad–investment. And there aren’t any magic systems to make them good ones.
Let’s begin with the worst investment of all: the lottery. In 1992, 69 percent of Canadian families bought lottery tickets, spending an average of $225 a year on them. Most of that money was probably spent on Canada’s best-known lottery, the 6/49. Those numbers weren’t chosen because they sound good together: in a 6/49 lottery, six numbers are drawn out of a possible 49. If those six numbers match the six numbers you chose, you win the grand prize (or a portion of it, if other people have also chosen the same six numbers).
The odds of the six numbers that are drawn matching the six numbers you chose are approximately one in 14 million. These are far greater than the odds of being struck by lightning (one in 2.5 million), being dealt a royal flush on the opening hand of a poker game (one in 649,739) or being killed by terrorists while travelling abroad (one in 650,000).
The odds are so long that playing a lot does little to increase your chance of winning. Suppose you spent $25 a week on 6/49 tickets for 20 years–a total of $26,000. Statistically, you could expect to win about half of that, leaving you with a net loss of around $13,000. By contrast, putting $100 a month into a well-chosen equity fund for 20 years could gain you tens of thousands of dollars.
Nor are there any “tricks” you can use to increase your chances of winning. Playing the same numbers over and over again doesn’t work. Some people reason that, since those numbers haven’t come up yet, they’re more likely to come up in the future than other numbers, but that’s false reasoning. Every draw in a lottery, just like every flip of a coin, is independent. It’s is just as likely that the same winning numbers will be drawn two weeks in a row as it is that any other numbers will be drawn. To put it another way, we think it’s terribly unlikely that, if we flip a coin 10 times, it will always come up heads; yet, really, it’s every bit as likely as that will happen as that any other specific sequence of results, say, HTTHTHHTHT, will come up. The coin has no memory of the previous result, so that result can affect the current flip; similarly, lottery balls have no memory of the previous time they were drawn, and so the previous number cannot affect the current draw.
Many people are aware of the long odds against winning a lottery, yet they keep playing. When it comes to dreams of instant wealth, it appears the rational mind can’t compete with the irrational mind in which hope springs eternal–which is why, as the jackpot grows bigger, more and more people who would ordinarily never buy a lottery ticket decide that they will, “just this once.”
More clear-eyed gamblers, however, don’t look at the size of the expected payout; they look at the “expected value.” Expected value is a way of computing a player’s average winnings (or losses) over repeated plays. If a game has an expected value of 100, then, on average, players will win back $1 for every dollar they bet. In a game with an expected value of 102, players would win an average of $1.02 for every dollar they bet (and whoever is running the game will go broke); in a game with an expected value of 98, players will, over time, lose an average of two cents on every dollar they bet. The expected value in lotteries varies, depending on the size of the jackpot, but, as the example I gave earlier shows, it’s rarely more than 50, meaning you can expect to lose half the money you invest, and more typically, it’s down around 14.3!
The games that casinos run all, without exception, offer an expected value below 100. This is the “house’s advantage.” Casinos don’t care that occasionally somebody wins a lot of money at a game; they know that over the long run, they’ll always win.
The expected value, and hence the house’s advantage, varies from game to game. In roulette, the expected value is 94.7, which makes the house’s advantage is 5.3 percent: in other words, if you were to bet $10,000 on roulette, in a series of $1 bets, you could expect to win back $9,470. This advantage is built into the design of the roulette wheel. A 38-section roulette wheel, for example, has 18 red sections–which means it has 20 sections that are not red. If you bet $1 on red repeatedly, you win $1 whenever red comes up and lose your $1 whenever it doesn’t. You’ll lose an average of $2 every 38 plays–one dollar for each non-red section. Similarly, if you bet $1 on specific numbers repeatedly, you’ll win one time out of 38, and win $35 (plus your $1 bet) whenever your number comes up–leaving you with that same $2 loss. The casino keeps that same 5.3 percent edge.
(Just to go back to lotteries for a minute, you can win $1 million playing roulette a lot easier than you can playing the lottery. Play a single number and win; that gives you $36. Put all the winnings on another single number and win again ($1,296). Do it again ($46,656), and one final time. You’ll have $1,679,616. The odds of doing that on the roulette wheel are over one in two million–seven times more likely than winning the lottery.)
In Baccarat (James Bond’s favorite game) the house advantage varies from 1.2 to 14.1 percent; in a craps game with normal betting, the house advantage is 1.4 to 16.7 percent; in keno the house advantage is 29.5 percent and slot machines’ house advantage ranges from two to 35 cents. (In slot machines, the first wheel has lots of winning symbols, the second fewer and the last the fewest of all; this keeps you interested as the wheels come to a halt, since you often think you’re winning right up until the final symbol shows.)
Just about the only game in which the player can ever draw close to the impossible goal of beating the house is blackjack, where, if you really know what you’re doing, you can come very close to an expected value of 100, or even, in certain single-deck games, slightly above 100. But there are so many variations in blackjack from casino to casino and even table to table that you’re not exactly going to be breaking the bank on a regular basis.
Again, there’s nothing new in all this: everybody knows that “the house always wins.” And yet, people keep gambling.
Why? Nobody’s entirely sure, but anthropologists hypothesize that early humans gambled because, to them, the world was a mysterious place controlled by supernatural beings whose favor or disfavor was indicated through chance situations–in other words, they thought the outcome of their gambling was determined by the gods, and, if they had found favor, they might win. Perhaps the increase in gambling today is an indication that modern humans, too, feel that the world is beyond their control, and that since bad things happen to them for no reason, maybe good things will, too.
For some people gambling becomes a compulsion, and can lead to serious financial and personal problems; compulsive gambling is now recognized as a disease, like alcoholism or other forms of addiction. But for most people, gambling is just something they do for fun. Which is fine: but just remember, most gamblers lose most of the time. You CAN win–but the odds, always, are against it.
Personally, I recommend a good RRSP.
