7 ms·

Poor People Should Probably Gamble More

50 points by ewjordan 16y ago

nhashem 16y ago
Sorry, I'm not buying this because utility can't be measured in pure dollars. If Mary does nothing, she does get socked with $100 and loses her license, but she still keeps the $130 that she uses for groceries et al. If she gambles and loses, then she's basically dead broke and can't even buy food, and if we're assuming she has no outside sources for help, then she is supposedly going to starve to death. That has a lot more (dis)utility than just losing $130. If she just gets socked with the fine and loses her license, she can still make other gambles that have a lot better expected value as overall utility, not just money. She can make the gamble of driving without a license, as the risk of being caught by the police is a lot less than losing everything by betting on black. She can use the $130 to buy a bicycle or a moped, and maybe that's enough transportation to get by for now. And so forth. The author has a good point in that the expected value in a gamble is often a better choice than the status quo, but reducing everything to dollars and coming up with the conclusion that "if you're screwed, put everything on black," is a fallacy.
- ewjordan 16y ago
  If she gambles and loses, then she's basically dead broke and can't even buy food, and if we're assuming she has no outside sources for help, then she is supposedly going to starve to death. Yes, this is a very good point, perhaps the way I should have phrased the example was that she had $130 left in the bank after obtaining the necessities of life, to remove that concern. In that case, I think the logic goes through a bit better. She can make the gamble of driving without a license, as the risk of being caught by the police is a lot less than losing everything by betting on black. In my example, that's exactly what I did (I drove as little as possible, but on occasion I had no choice), and I did, in fact, get away with it long enough to get my license back (it's worth noting that had I not gotten away with it, getting my license back would have been a much more troublesome process). But be aware, I was pretty lucky - if your license is taken away, your plate will get flagged if the car is registered in your name, and you'll absolutely get pulled over if a police officer sees you driving and has nothing better to do. My girlfriend was pulled over several times while driving my car during that period, and then immediately let go when they realized it wasn't me behind the wheel. reducing everything to dollars and coming up with the conclusion that "if you're screwed, put everything on black," is a fallacy Indeed, it's not always the right solution - but it's also wrong to assume that just because the odds are against you in a bet, you shouldn't take the bet, if the other option is to do nothing, especially if doing nothing leaves you screwed anyways.
hitonagashi 16y ago
The problem for me is that if you are in that situation, it may work for a one off...but if you are poor, that isn't going to be the only occasion a situation like that comes up. If your solution is gambling to resolve problems, your luck will eventually run out and leave you in an even bigger mess than when you started.
mattmaroon 16y ago
I sure hope nobody reads this and is fooled by it. It's terrible, terrible advice for three reasons. 1. Money has a declining marginal utility. Winning that $130 isn't nearly as positive as losing it would have been negative. The author neglects to mention what happens the other 53% of the time when someone with mounting bills loses the last money they had. Debt spiral is usually the result. Even if the odds were 50/50, or in fact even if they were slightly favorable but it were a one-time deal, it would be better not to gamble. You should really only gamble in situations where the expectation is more than enough to offset the declining marginal utility, or is repeatable enough to accomplish that. #2. If someone has the discipline to go into a casino, double their money, and leave without gambling further, then they probably had the discipline to avoid this situation in the first place. Casinos make billions of dollars because most people can't do this. #3. It's fairly rare in the real world that there isn't some option better than gambling. Even a payday loan place probably gives you a higher EV than a roulette wheel. Borrowing from a credit card probably does as well. Do either to bridge the gap while looking for a second job. Also driving with a suspended license is an option. #3.5 (bonus reason): You're much better off making a don't pass bet at a craps table while you're there. I think that's the best bet you'll find in a casino that doesn't require skill. (There are better, some that are even positive expectation, but I'm assuming our person isn't a professional video poker player.)
- gojomo 16y ago
  All that you say is practical and true but it seems in this contrived example, the imminent deadline with a disproportionate-to-the-time-value-of-money late fee means that liquidity now, in the winning scenario, has an extra utility -- as if it had increasing marginal utility.
  - mattmaroon 16y ago
    It doesn't though, because you're not considering the rest of life. Whether or not this person pays the BMV, they still have to buy groceries, pay off credit cards. That $130 is not useless at all. The most likely result of gambling is that they will still have to pay the BMV bill plus now have to recoup $130 (which is hard for them to come by) to pay other bills.
illamint 16y ago
And for God's sake, man, pay your tickets before they're overdue, a few hundred bucks is nothing compared to the pain of trying to get just about anything done at the Connecticut Department of Motor Vehicles! It's true: I just moved to CT and had to deal with transferring a car title, registration and license from out of state and it was a nightmare. Definitely would've rather spent the 8 hours and ~$350 at a casino, of course.
- krschultz 16y ago
  +1 because I just did the same thing. CT DMV has to be the worst in the country.
jfager 16y ago
Or: go to the courthouse to get on a payment plan or ask the judge to waive the ticket or let you perform community service. It's not like you're the only person ever who hasn't been able to pay a ticket, that scenario gets handled all the time with zero drama.
- patio11 16y ago
  The notion that "this is probably negotiable" is one of the things that persistently separates rich people from poor people in my experience. (That is partially a knowledge thing, partially a culture thing, and at least partially a "people tolerate rich people having a cavalier disregard for The Rules a lot more than they tolerate poor people in the same situation" thing.)
  - jfager 16y ago
    In my experience, the notion that "I should go to the casino to try to get out of this" is one of those things, as well. They're both reflections of the same underlying issue, the division between "I'm helpless" vs. "I can do something". It's a little mind-bending to read a post that tries to frame gambling as something someone in the latter category would do.
  - ewjordan 16y ago
    The notion that "this is probably negotiable" is one of the things that persistently separates rich people from poor people in my experience. When I landed myself in this situation, that was exactly the problem: I felt like the Big Bad Court System would never cut a stupid kid like me any slack, and it just never occurred to me that I should talk to them and see what could be done about it. After trying unsuccessfully to deal reasonably with the DMV on the issue, I sort of assumed every aspect of the government was always out to screw me over in any way possible. Live and learn, I suppose.
- mattmaroon 16y ago
  I'm pretty sure you can get out of many fines completely on grounds of indigency.
gojomo 16y ago
I clicked through expecting to be disappointed... but by golly, there's something to this. An imminent, disproportionate late-fee can make a less-than-even chance of instant liquidity more valuable than a more-than-even chance of larger loss. Of course, assuming any reasonable credit is available at all, and that the person is not in permanent deficit unable to eventually pay back a loan, would give rise to a dominant option C, where enough is borrowed to avoid the penalty. But maybe this same effect is what makes 'payday' loans at astronomical effective rates attractive to some people. Is there some other 'guardian angel' business model possible from this effect -- protecting the liquidity-challenged from disproportionate late fees, via an automatic loan of just-enough to save the fee, splitting the savings with the affected person? As in: seconds before BofA or some other institution is about to pillage someone for $30, the 'angel' swoops in with a just-in-time loan, charging the person (in fees and interest) any amount less than $30 -- and lower with more competition.
- jrockway 16y ago
  As in: seconds before BofA or some other institution is about to pillage someone for $30, the 'angel' swoops in with a just-in-time loan, charging the person (in fees and interest) any amount less than $30 -- and lower with more competition. It's called a credit card or savings account. If you have a credit card, you can't overdraw it. Or you can link your checking account to it, avoiding the "we're loaning you money even though you didn't ask for it" fee. Or you can have a savings account, and dip into that when your checking account runs out of money. Or you can just not run out of money. I got hit with an overdraft fee back when I was in college even though I explicitly opted out. I didn't make that mistake again. I stopped using a debit card and started using a credit card again... and now I even get 1.5% cash back. (If this happened to me now, I would have just filed a complaint with the state's attorneys general office. Customer service doesn't want to help? Enjoy the fine and new regulations.)
  - gojomo 16y ago
    Yes -- that's what someone who's on the ball does, using a short-term/reasonably-priced source of extra funds to avoid late fees. The theory of the 'guardian angel' service is that it handles things even when you forget. It presupposes that there's some way to give the service total visibility into your imminent payment deadlines -- of course right now that doesn't exist, and the businesses that rely on late fees for their margin may not want it to. But this might be an appropriate area for an industry consortium or even regulation to create a clearinghouse. If you're about to fine someone $X for an amount due up to $Y, you have to broadcast it on some confidential national clearinghouse an hour before assessment, allowing a contracted representative of the target to settle it on their behalf. If you do this, your fine is considered reasonable and customary; if you don't, it's presumed to be trickery and held to a higher standard. I agree it's farfetched. But when we're talking contrived scenarios where people living hand-to-mouth should play roulette, the imagination wanders!
sliverstorm 16y ago
> In the end, though, I did nothing, my license was revoked, and I had to live without one until I was able to come up with the extra cash that it took get it back Maybe that was the best solution? Having to live without a privilege such as your licence seems like one of the best ways to teach you not to let your registration expire next time. Stay on top of things, and don't let the first late fees happen in the first place. If you STILL don't have enough money, you're living beyond your means, plain and simple.
seles 16y ago
"Let's assume for the moment that Mary has no safety net; there are no friends she can ask to float her a loan, no family members that she can reach out to, etc." But this is almost always a false assumption. It would be better to borrow money to pay the fee in time. Can anyone think of a case where it actually would be better to gamble (at expected loss) than borrow money?
- DrStalker 16y ago
  Maybe her friends are sick of watching her gamble her last few dollars away whenever there is an emergency.
javanix 16y ago
And uneducated people shouldn't read this at all.
rkosai 16y ago
What about the case for a startup? Say, you raise $500k but you "know" (for the sake of argument) you need a million to make the thing work. No gamble: 0% chance of success * 53% Put it all on black: non-zero chance of success * 47% I don't imagine this would go over very well with investors, though.
skowmunk 16y ago
Dunno abt poor people gambling more, but they sure can get educated more - so that they can at least calculate their odds better.
Dn_Ab 16y ago
I do not think the reasoning in this piece is solid. Firstly the concept of expected value only make sense over repeated trials of the same experiment and using it here on a one off is a misapplication. Unless the person is expecting many such tickets. At which point the combination of the person's stupidity and statistical variance will have them broke a lot quicker. The expected value is no more meaningful as a dollar amount as 2.5 is for average number of kids to a family. The other portion is the fact that the $250 is a sunk cost. Future decisions should be independent of that money lost. Rationalizing gambling using cost relativity since gambling on an already expensive bill "will save you money" is not logical. It won't save you money unless you keep doing stupid things at which point you are already losing alot of money - its on average meaning repeated trials. Simply irresponsible. I'm either gonna win $130 with 47% chance or lose $130 with 53% chance. My $250 bill is sunk and completely independent of this decision and outcome. Otherwise any time I have an expensive bill to pay and will be left with only about $130 why not gamble it save the amount I need to pay in the long run. This is the start of a gambling problem.
- kscaldef 16y ago
  The $250 is a sunk cost, but the further $100 penalty if you don't pay is not. That's the critical point that you're ignoring.
- ewjordan 16y ago
  I'm either gonna win $130 with 47% chance or lose $130 with 53% chance. My $250 bill is sunk and completely independent of this decision and outcome. Otherwise any time I have an expensive bill to pay and will be left with only about $130 why not gamble it save the amount I need to pay in the long run. This is the start of a gambling problem. No, you're missing the point: the $250 is, indeed, a sunk cost. The $100 fee that's going to add on if it's not paid on time, however, is not. Stripping away all the irrelevant details of the problem, the (completely contrived and artificial, indeed) choice is between: A) Certainly losing another $100, B) A near 50/50 shot (minus a single-digit house edge) of either winning $130, or losing $230 (lose the $130 bet, plus have to pay the $100 "late fee") The $250 owed is irrelevant to the problem except to trigger the late fee and set up this payoff structure. Firstly the concept of expected value only make sense over repeated trials of the same experiment and using it here on a one off is a misapplication. Whether or not expected value calculations are valid for single shot deals, are you really saying you'd choose option A in this situation, which loses you twice as much as the expected loss in option B?
araneae 16y ago
Tangent: I always thought state sanctioned lotteries were highly immoral. Sure, they want the tax revenue, but poor people are disproportionately the victims of what feels like fraud. The people believe that have a chance at winning what they most certainly do not. It's like reverse welfare- taxing the poor and uneducated for the benefit of the masses.
- julius_geezer 16y ago
  It's definitely a regressive tax. Generally it offers worse odds than the numbers guys did back in the day. One could argue that it's better than legalizing casino gambling and inviting Steve Wynn to come into your state and help write the laws.
- ewjordan 16y ago
  Tangent: Not at all. In fact, I wrote this up because of a conversation I had a while back with a man buying a lottery ticket at the gas station. I was talking with him about how bad the odds were, and he fully admitted that he was getting terrible odds on that dollar. But he figured that on the one in a million chance that he hit the jackpot, even if he only saw a quarter of that amount he could actually get out of debt and start making the power of compound interest work for him instead of against him, and after enough time with that money in the bank, the scales would tip in favor of spending the dollar on the lottery ticket. Now, I don't think that argument really holds water, and I told him so (for several reasons, even apart from my skepticism that he'd actually put any cash he won into a properly managed account without spending a huge chunk of it first; the odds at the lottery are so hideous and the doubling time for a quarter million that you're also drawing money out of to live off of is very long, so it would be tough to make those numbers work out), but it got me started thinking about whether there might actually be situations where a losing gamble could be worthwhile, depending on the current situation of indebtedness.
  - DrStalker 16y ago
    I like to pickup lotto tickets occasionally; it's basically a small fee to spend the week daydreaming about what you'd do with a sudden influx of money you didn't have to do any work to get. If I win back the cost of the ticket on a minimal prize I consider myself to have won. Gambling where you get the results quickly (pretty much anything at a casino) has no appeal for me though, I see that as simply destroying money.
ojbyrne 16y ago
Of course, poor people _do_ gamble more.
lsc 16y ago
The problem here, I think, is that the problem as stated only works out if having $0 dollars is no better than having -$200. I don't think this is the common case, but there are cases where that makes sense, for instance if keeping a license enables you to keep a job that will allow you to easily pay off the debt, or, if you multiplied the numbers by 1000, and assumed the poor person was willing to declare bankruptcy. In that case, you might have a point; Really, I think this is why buying a house at a time of obvious volatility is such a good deal, assuming you have no other assets. If prices go up, you have put 5% down on an asset that is appreciating quickly. In the up market, housing was appreciating at north of 10% a year; that's 10% of the total home value, of which you maybe put down 5%. If prices go down? you walk. The question, in that case, is how much does declaring bankruptcy cost? I mean, you have the up front lawyer costs... then you have the problems associated with having bad credit. but I can see many cases where taking the gamble would make sense.

50 points by ewjordan 16y ago

Sorry, I'm not buying this because utility can't be measured in pure dollars. If Mary does nothing, she does get socked with $100 and loses her license, but she still keeps the $130 that she uses for groceries et al. If she gambles and loses, then she's basically dead broke and can't even buy food, and if we're assuming she has no outside sources for help, then she is supposedly going to starve to death. That has a lot more (dis)utility than just losing $130. If she just gets socked with the fine and loses her license, she can still make other gambles that have a lot better expected value as overall utility, not just money. She can make the gamble of driving without a license, as the risk of being caught by the police is a lot less than losing everything by betting on black. She can use the $130 to buy a bicycle or a moped, and maybe that's enough transportation to get by for now. And so forth. The author has a good point in that the expected value in a gamble is often a better choice than the status quo, but reducing everything to dollars and coming up with the conclusion that "if you're screwed, put everything on black," is a fallacy.

ewjordan 16y ago
If she gambles and loses, then she's basically dead broke and can't even buy food, and if we're assuming she has no outside sources for help, then she is supposedly going to starve to death. Yes, this is a very good point, perhaps the way I should have phrased the example was that she had $130 left in the bank after obtaining the necessities of life, to remove that concern. In that case, I think the logic goes through a bit better. She can make the gamble of driving without a license, as the risk of being caught by the police is a lot less than losing everything by betting on black. In my example, that's exactly what I did (I drove as little as possible, but on occasion I had no choice), and I did, in fact, get away with it long enough to get my license back (it's worth noting that had I not gotten away with it, getting my license back would have been a much more troublesome process). But be aware, I was pretty lucky - if your license is taken away, your plate will get flagged if the car is registered in your name, and you'll absolutely get pulled over if a police officer sees you driving and has nothing better to do. My girlfriend was pulled over several times while driving my car during that period, and then immediately let go when they realized it wasn't me behind the wheel. reducing everything to dollars and coming up with the conclusion that "if you're screwed, put everything on black," is a fallacy Indeed, it's not always the right solution - but it's also wrong to assume that just because the odds are against you in a bet, you shouldn't take the bet, if the other option is to do nothing, especially if doing nothing leaves you screwed anyways.

hitonagashi 16y ago

The problem for me is that if you are in that situation, it may work for a one off...but if you are poor, that isn't going to be the only occasion a situation like that comes up. If your solution is gambling to resolve problems, your luck will eventually run out and leave you in an even bigger mess than when you started.

mattmaroon 16y ago

I sure hope nobody reads this and is fooled by it. It's terrible, terrible advice for three reasons. 1. Money has a declining marginal utility. Winning that $130 isn't nearly as positive as losing it would have been negative. The author neglects to mention what happens the other 53% of the time when someone with mounting bills loses the last money they had. Debt spiral is usually the result. Even if the odds were 50/50, or in fact even if they were slightly favorable but it were a one-time deal, it would be better not to gamble. You should really only gamble in situations where the expectation is more than enough to offset the declining marginal utility, or is repeatable enough to accomplish that. #2. If someone has the discipline to go into a casino, double their money, and leave without gambling further, then they probably had the discipline to avoid this situation in the first place. Casinos make billions of dollars because most people can't do this. #3. It's fairly rare in the real world that there isn't some option better than gambling. Even a payday loan place probably gives you a higher EV than a roulette wheel. Borrowing from a credit card probably does as well. Do either to bridge the gap while looking for a second job. Also driving with a suspended license is an option. #3.5 (bonus reason): You're much better off making a don't pass bet at a craps table while you're there. I think that's the best bet you'll find in a casino that doesn't require skill. (There are better, some that are even positive expectation, but I'm assuming our person isn't a professional video poker player.)

gojomo 16y ago
All that you say is practical and true but it seems in this contrived example, the imminent deadline with a disproportionate-to-the-time-value-of-money late fee means that liquidity now, in the winning scenario, has an extra utility -- as if it had increasing marginal utility.
- mattmaroon 16y ago
  It doesn't though, because you're not considering the rest of life. Whether or not this person pays the BMV, they still have to buy groceries, pay off credit cards. That $130 is not useless at all. The most likely result of gambling is that they will still have to pay the BMV bill plus now have to recoup $130 (which is hard for them to come by) to pay other bills.

illamint 16y ago

And for God's sake, man, pay your tickets before they're overdue, a few hundred bucks is nothing compared to the pain of trying to get just about anything done at the Connecticut Department of Motor Vehicles! It's true: I just moved to CT and had to deal with transferring a car title, registration and license from out of state and it was a nightmare. Definitely would've rather spent the 8 hours and ~$350 at a casino, of course.

krschultz 16y ago
+1 because I just did the same thing. CT DMV has to be the worst in the country.

jfager 16y ago

Or: go to the courthouse to get on a payment plan or ask the judge to waive the ticket or let you perform community service. It's not like you're the only person ever who hasn't been able to pay a ticket, that scenario gets handled all the time with zero drama.

patio11 16y ago
The notion that "this is probably negotiable" is one of the things that persistently separates rich people from poor people in my experience. (That is partially a knowledge thing, partially a culture thing, and at least partially a "people tolerate rich people having a cavalier disregard for The Rules a lot more than they tolerate poor people in the same situation" thing.)
- jfager 16y ago
  In my experience, the notion that "I should go to the casino to try to get out of this" is one of those things, as well. They're both reflections of the same underlying issue, the division between "I'm helpless" vs. "I can do something". It's a little mind-bending to read a post that tries to frame gambling as something someone in the latter category would do.
- ewjordan 16y ago
  The notion that "this is probably negotiable" is one of the things that persistently separates rich people from poor people in my experience. When I landed myself in this situation, that was exactly the problem: I felt like the Big Bad Court System would never cut a stupid kid like me any slack, and it just never occurred to me that I should talk to them and see what could be done about it. After trying unsuccessfully to deal reasonably with the DMV on the issue, I sort of assumed every aspect of the government was always out to screw me over in any way possible. Live and learn, I suppose.
mattmaroon 16y ago
I'm pretty sure you can get out of many fines completely on grounds of indigency.

gojomo 16y ago

I clicked through expecting to be disappointed... but by golly, there's something to this. An imminent, disproportionate late-fee can make a less-than-even chance of instant liquidity more valuable than a more-than-even chance of larger loss. Of course, assuming any reasonable credit is available at all, and that the person is not in permanent deficit unable to eventually pay back a loan, would give rise to a dominant option C, where enough is borrowed to avoid the penalty. But maybe this same effect is what makes 'payday' loans at astronomical effective rates attractive to some people. Is there some other 'guardian angel' business model possible from this effect -- protecting the liquidity-challenged from disproportionate late fees, via an automatic loan of just-enough to save the fee, splitting the savings with the affected person? As in: seconds before BofA or some other institution is about to pillage someone for $30, the 'angel' swoops in with a just-in-time loan, charging the person (in fees and interest) any amount less than $30 -- and lower with more competition.

jrockway 16y ago
As in: seconds before BofA or some other institution is about to pillage someone for $30, the 'angel' swoops in with a just-in-time loan, charging the person (in fees and interest) any amount less than $30 -- and lower with more competition. It's called a credit card or savings account. If you have a credit card, you can't overdraw it. Or you can link your checking account to it, avoiding the "we're loaning you money even though you didn't ask for it" fee. Or you can have a savings account, and dip into that when your checking account runs out of money. Or you can just not run out of money. I got hit with an overdraft fee back when I was in college even though I explicitly opted out. I didn't make that mistake again. I stopped using a debit card and started using a credit card again... and now I even get 1.5% cash back. (If this happened to me now, I would have just filed a complaint with the state's attorneys general office. Customer service doesn't want to help? Enjoy the fine and new regulations.)
- gojomo 16y ago
  Yes -- that's what someone who's on the ball does, using a short-term/reasonably-priced source of extra funds to avoid late fees. The theory of the 'guardian angel' service is that it handles things even when you forget. It presupposes that there's some way to give the service total visibility into your imminent payment deadlines -- of course right now that doesn't exist, and the businesses that rely on late fees for their margin may not want it to. But this might be an appropriate area for an industry consortium or even regulation to create a clearinghouse. If you're about to fine someone $X for an amount due up to $Y, you have to broadcast it on some confidential national clearinghouse an hour before assessment, allowing a contracted representative of the target to settle it on their behalf. If you do this, your fine is considered reasonable and customary; if you don't, it's presumed to be trickery and held to a higher standard. I agree it's farfetched. But when we're talking contrived scenarios where people living hand-to-mouth should play roulette, the imagination wanders!

sliverstorm 16y ago

> In the end, though, I did nothing, my license was revoked, and I had to live without one until I was able to come up with the extra cash that it took get it back Maybe that was the best solution? Having to live without a privilege such as your licence seems like one of the best ways to teach you not to let your registration expire next time. Stay on top of things, and don't let the first late fees happen in the first place. If you STILL don't have enough money, you're living beyond your means, plain and simple.

seles 16y ago

"Let's assume for the moment that Mary has no safety net; there are no friends she can ask to float her a loan, no family members that she can reach out to, etc." But this is almost always a false assumption. It would be better to borrow money to pay the fee in time. Can anyone think of a case where it actually would be better to gamble (at expected loss) than borrow money?

DrStalker 16y ago
Maybe her friends are sick of watching her gamble her last few dollars away whenever there is an emergency.

javanix 16y ago

And uneducated people shouldn't read this at all.

rkosai 16y ago

What about the case for a startup? Say, you raise $500k but you "know" (for the sake of argument) you need a million to make the thing work. No gamble: 0% chance of success * 53% Put it all on black: non-zero chance of success * 47% I don't imagine this would go over very well with investors, though.

skowmunk 16y ago

Dunno abt poor people gambling more, but they sure can get educated more - so that they can at least calculate their odds better.

Dn_Ab 16y ago

I do not think the reasoning in this piece is solid. Firstly the concept of expected value only make sense over repeated trials of the same experiment and using it here on a one off is a misapplication. Unless the person is expecting many such tickets. At which point the combination of the person's stupidity and statistical variance will have them broke a lot quicker. The expected value is no more meaningful as a dollar amount as 2.5 is for average number of kids to a family. The other portion is the fact that the $250 is a sunk cost. Future decisions should be independent of that money lost. Rationalizing gambling using cost relativity since gambling on an already expensive bill "will save you money" is not logical. It won't save you money unless you keep doing stupid things at which point you are already losing alot of money - its on average meaning repeated trials. Simply irresponsible. I'm either gonna win $130 with 47% chance or lose $130 with 53% chance. My $250 bill is sunk and completely independent of this decision and outcome. Otherwise any time I have an expensive bill to pay and will be left with only about $130 why not gamble it save the amount I need to pay in the long run. This is the start of a gambling problem.

kscaldef 16y ago
The $250 is a sunk cost, but the further $100 penalty if you don't pay is not. That's the critical point that you're ignoring.
ewjordan 16y ago
I'm either gonna win $130 with 47% chance or lose $130 with 53% chance. My $250 bill is sunk and completely independent of this decision and outcome. Otherwise any time I have an expensive bill to pay and will be left with only about $130 why not gamble it save the amount I need to pay in the long run. This is the start of a gambling problem. No, you're missing the point: the $250 is, indeed, a sunk cost. The $100 fee that's going to add on if it's not paid on time, however, is not. Stripping away all the irrelevant details of the problem, the (completely contrived and artificial, indeed) choice is between: A) Certainly losing another $100, B) A near 50/50 shot (minus a single-digit house edge) of either winning $130, or losing $230 (lose the $130 bet, plus have to pay the $100 "late fee") The $250 owed is irrelevant to the problem except to trigger the late fee and set up this payoff structure. Firstly the concept of expected value only make sense over repeated trials of the same experiment and using it here on a one off is a misapplication. Whether or not expected value calculations are valid for single shot deals, are you really saying you'd choose option A in this situation, which loses you twice as much as the expected loss in option B?

araneae 16y ago

Tangent: I always thought state sanctioned lotteries were highly immoral. Sure, they want the tax revenue, but poor people are disproportionately the victims of what feels like fraud. The people believe that have a chance at winning what they most certainly do not. It's like reverse welfare- taxing the poor and uneducated for the benefit of the masses.

julius_geezer 16y ago
It's definitely a regressive tax. Generally it offers worse odds than the numbers guys did back in the day. One could argue that it's better than legalizing casino gambling and inviting Steve Wynn to come into your state and help write the laws.
ewjordan 16y ago
Tangent: Not at all. In fact, I wrote this up because of a conversation I had a while back with a man buying a lottery ticket at the gas station. I was talking with him about how bad the odds were, and he fully admitted that he was getting terrible odds on that dollar. But he figured that on the one in a million chance that he hit the jackpot, even if he only saw a quarter of that amount he could actually get out of debt and start making the power of compound interest work for him instead of against him, and after enough time with that money in the bank, the scales would tip in favor of spending the dollar on the lottery ticket. Now, I don't think that argument really holds water, and I told him so (for several reasons, even apart from my skepticism that he'd actually put any cash he won into a properly managed account without spending a huge chunk of it first; the odds at the lottery are so hideous and the doubling time for a quarter million that you're also drawing money out of to live off of is very long, so it would be tough to make those numbers work out), but it got me started thinking about whether there might actually be situations where a losing gamble could be worthwhile, depending on the current situation of indebtedness.
- DrStalker 16y ago
  I like to pickup lotto tickets occasionally; it's basically a small fee to spend the week daydreaming about what you'd do with a sudden influx of money you didn't have to do any work to get. If I win back the cost of the ticket on a minimal prize I consider myself to have won. Gambling where you get the results quickly (pretty much anything at a casino) has no appeal for me though, I see that as simply destroying money.

ojbyrne 16y ago

Of course, poor people _do_ gamble more.

lsc 16y ago

The problem here, I think, is that the problem as stated only works out if having $0 dollars is no better than having -$200. I don't think this is the common case, but there are cases where that makes sense, for instance if keeping a license enables you to keep a job that will allow you to easily pay off the debt, or, if you multiplied the numbers by 1000, and assumed the poor person was willing to declare bankruptcy. In that case, you might have a point; Really, I think this is why buying a house at a time of obvious volatility is such a good deal, assuming you have no other assets. If prices go up, you have put 5% down on an asset that is appreciating quickly. In the up market, housing was appreciating at north of 10% a year; that's 10% of the total home value, of which you maybe put down 5%. If prices go down? you walk. The question, in that case, is how much does declaring bankruptcy cost? I mean, you have the up front lawyer costs... then you have the problems associated with having bad credit. but I can see many cases where taking the gamble would make sense.