3 ms·

Compute the average payoff. If it's positive, it's investing. If it's negative, it's gambling.

by ctdonath 14y ago

umsm 14y ago
That's not true. Investments can fail.
- jlarocco 14y ago
  And every once in a while somebody walks into a casino, puts a coin in a slot machine, wins the jackpot and leaves with 100000x their initial "investment". In general, over the long term, investing makes money. In general, over the long term, gambling loses money.
lotharbot 14y ago
If the average payoff is negative, but the payoff is tied to a catastrophic event, then it's insurance. Risk mitigation is a valid part of investing. Gambling has a negative, random payoff.
tunesmith 14y ago
Occasionally, a large jackpot can return a positive average payoff, if it's powerball style and they accrue from round to round. However, the odds are so astronomically against any one ticket winning, that it would still be considered gambling. If a billionaire could risk enough of their fortune to gain a high probability of getting that winning ticket and therefore making an overall profit, then perhaps it would be investing from his perspective, but if you or I blows our $50k emergency fund and still has a 99% chance of losing it all, it's still gambling.
- T-hawk 14y ago
  This strategy fails because multiple winners would split the jackpot. If one billionaire sees a positive return in buying up the entire probability space to get the jackpot, he must assume that another billionaire would also come to the same conclusion. No player can assume they're the only one applying the strategy; they each must assume the jackpot will split until a ticket is no longer positive value.
gfodor 14y ago
This is kind of a crude definition. If you knew a certain slot machine in Vegas had a positive expected payout, sure, you'd be rich, but is it an investment? Also, there are plenty of people legitimately investing in companies that have less than even odds of a return. Investing to me is more about mindset and the manner in which you deploy capital for a return, and how much you are relying upon luck, guesswork, and chance.
ronaldx 14y ago
Gambler's ruin applies even in circumstances with positive expectation.

Compute the average payoff. If it's positive, it's investing. If it's negative, it's gambling.

umsm 14y ago

That's not true. Investments can fail.

jlarocco 14y ago
And every once in a while somebody walks into a casino, puts a coin in a slot machine, wins the jackpot and leaves with 100000x their initial "investment". In general, over the long term, investing makes money. In general, over the long term, gambling loses money.

lotharbot 14y ago

If the average payoff is negative, but the payoff is tied to a catastrophic event, then it's insurance. Risk mitigation is a valid part of investing. Gambling has a negative, random payoff.

tunesmith 14y ago

Occasionally, a large jackpot can return a positive average payoff, if it's powerball style and they accrue from round to round. However, the odds are so astronomically against any one ticket winning, that it would still be considered gambling. If a billionaire could risk enough of their fortune to gain a high probability of getting that winning ticket and therefore making an overall profit, then perhaps it would be investing from his perspective, but if you or I blows our $50k emergency fund and still has a 99% chance of losing it all, it's still gambling.

T-hawk 14y ago
This strategy fails because multiple winners would split the jackpot. If one billionaire sees a positive return in buying up the entire probability space to get the jackpot, he must assume that another billionaire would also come to the same conclusion. No player can assume they're the only one applying the strategy; they each must assume the jackpot will split until a ticket is no longer positive value.

gfodor 14y ago

This is kind of a crude definition. If you knew a certain slot machine in Vegas had a positive expected payout, sure, you'd be rich, but is it an investment? Also, there are plenty of people legitimately investing in companies that have less than even odds of a return. Investing to me is more about mindset and the manner in which you deploy capital for a return, and how much you are relying upon luck, guesswork, and chance.

ronaldx 14y ago

Gambler's ruin applies even in circumstances with positive expectation.