Roll the Dice

With high unemployment, slow job creation, and the future economic state uncertain, Americans are more price-conscious than ever. While no one tries to “throw away money,” wasteful spending is a typical occurrence whether it is paying for unnecessary conveniences or simply gambling away hard-earned money.

20% of lotteries have experienced a drop in revenue, 65% have remained stagnant from the previous fiscal year, but 15% have increased, despite the recession. Las Vegas has been hit hard by the recession. Since less people indulge in vacations, gambling trips have been less frequent and less lavish. However, the online lotteries have faired relatively well since gambling takes place from the comfort of one’s own home.

Though, gaming commissions would argue that the industry is failing, I cannot help but think that the lotteries and casinos are doing much better than I would have anticipated. Slot machines have up to 15.20% advantage, with their edge lessening as the minimum bet increases. Blackjack, for an experienced player, is potentially more lucrative with less than one percent advantage of the house over the player. One of the worst games to play is Keno with between 25% and 29% house advantage (so that scene in National Lampoon’s Vegas Vacation – completely unlikely). So why would people continue to gamble away their scare funds when the odds of winning are clearly against them?

Gambler’s conceit is one of most detrimental occurrences among gamblers. The rational gambler always contends, before laying a single chip on the table, that they will quit when they are ahead – the famous last words. If only a gambler set aside their initial investment after a big win and continued to play with their wins, the better could conceivable walk away even after an enjoyable evening of gambling. However, that simply does not occur when the stakes are high.

The gambler’s fallacy is the driving force behind dipper further into one’s pocket after a devastating loss. Also called the “Monte Carlo Fallacy,” it is a belief that a string of unfavorable outcomes will eventually end in order to even out the deviations. By attempting to change the string of bad luck, a gambler will continue to dig a hole despite their better judgment.

Superstition is a prevailing sentiment among gamblers. Whether it is wearing a pair of lucky underwear, shacking die in a certain way, or using a specific slot machine, many chronic gamblers adhere to the inverse gambler’s fallacy, assuming that the so-called “good luck charms” can defy the laws of math and boost their odds. 

Unfortunately, some of these principles carry over to investing in the stock market. Those same hedge fund managers that think of themselves as nearly infallible are the same people that will delve further and further into their gains to cover their losses. And as for knowing when to quit – so many people hold onto a stock, waiting for it to start rising again, only to lose everything in the end. I cannot claim to be an investing expert, but the advice that I can give you is: cut your losses because in the end, worrying about the small declines (and the sunk costs of investments) will only result in even higher investment pitfalls.