Investing vs. Gambling | The Philosophy of Economics
A systematic Thinking about money, wealth, investing, speculating and other topics of economics.
What is the most important difference between gambling and investing?
Gambling is harmful because it is a zero-sum game that guarantees at least a winner but also a loser. Investing doesn’t guarantee any winner but also not require any losers.
Gamblers try to make money by taking risks. Investors, on the contrary, make money by avoiding risks.
Gamblers artificially create risks but investors try to eliminate already existing risks.
Why are zero-sum games harmful?
Because zero-sum games consume resources and time like every game but do not create wealth. At the End, it only depletes resources. One can say the winner would improve his skills; this is true but his skills would be beneficial only then if he uses them in a productive way and not in a zero-sum game. And also, he doesn’t need zero-sum games to develop skills.
Investors want to participate in the real success which is creating value and cannot depend on luck.
Time is on the Side of Investors:
Making money with investing gets easier and easier with time because the investors can increase their skills and knowledge by investing but gambling always remains as a path to financial ruin.
Investing leads to personal improvement while gambler ends up with desperate frustration. For investors, it is very important that their success associates with their personal skills and luck don’t play the primary role. Gamblers want only win, they don’t care for any justification.
Gamblers don’t love risk, they love luck and they depend on luck which is always at a risk. Luck is always unexpected and thereof comes the gambler’s addiction. Investor, on the contrary, wishes an outcome expected by his calculations.
So, gambler heavily depends on risk and therefore financially doomed, unless the played gamble is unfair and favors him like casinos favor the house. Investor, on the contrary, cannot depend on luck has to rely on his skills and experience which would be improved with time.
And of course, an investor can enjoy the compound return on a successful investment which grows exponentially.
Why people gamble even if the odds are against them?
Usually, people begin to gamble just for its entertainment and then they use it to escape from their problems. But a gambler’s addiction evolves in a very sneaky way and the gambler easily get addicted without his notice.
The Gambler has the addiction not only to the gambling but also to a certain kind of gamble, i. g. horse race, and to a certain environment, i. g. casinos. Therefore the addiction would force him even if the odds are against him – a gamble in a casino would always favor the house. Because of this, casinos try to create an environment which would promote the addiction, i. g. girls, alcohol, lights, the sound etc..
Investing and trading can also be very strongly addictive but they can provide odds in favor of traders/investors. And the investors and traders can also better control their behavior compared to gamblers.
But sometimes, investors/traders can make irrational decisions because they want to buy a hope like a gambler.
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