What are the economics of betting/gambling?
When one gambles/bets in a casino, there is a saying that goes, "the odds are always on the house." Simply, that means that your chances of winning against the house, that is, the casino, extends from miniscule to nothing. When you buy a lottery ticket, the odds are completely against the buyer. In Britain, the odds of winning are 13,983,815:1.
In other words, if you buy a lottery ticket in Britain, the odds or the probability of you winning the top prize is 1 in 13 million.
You actually have better odds of being struck by lightening or being hit by a truck or your plane crashing. (To get a better understanding of probabilities and chance, one must necessarily read and understand a subject called Game Theory.) Then why has it been estimated that nearly 90 per cent of adults in the UKplay the lottery. In fact, casinos, lotteries, and gambling syndicates around the world make billions of dollars and that they are constantly expanding.
Yet, why do people constantly bet despite dismal odds? It is because of two uniquely human traits and they are `hope' and `greed' and they are in no particular order of importance.
Received economics theory is that humans are `rational agents' but when you think about it, is betting rational. That point can be debated endlessly with no outcome because bettors will claim that they are rational because they insider information or are better informed than others while others will say that it is sheer madness (that is, irrational) to bet against such huge odds. Of course, often the odds aren't that bad. Odds aren't bad for sports games compared to lottery tickets.
Typically games such as horse-racing, football, and cricket have odds placed on their outcome. Odds are calculated on a number of factors such as past performance, players in a team, performance of other horses, teams, etc.
You often see that the odds for winning a game are 6:4 or 4:6. To explain the odds 6:4 means that the chances of particular team or horse winning is that out of 10 chances, they have a chance of losing 6 times and winning 4 times. If the odds are 4:6, then it is the other way around. If the odds are 99:1, then the odds of winning are 1 every 100 games or next to nothing.
Bettors make more money if they bet of winning teams that have lower odds like 20:1 than teams that have odds like 3:1 or 4:6. This is because they have taken take a far greater risk betting on a team that is less likely to win. In other words, there is a higher risk-reward ratio.
Therefore, the only information that a bettor (honest bettor) has is the odds published by betting houses or by newspapers and that is likely to be the only information they will ever have.
So what is the economics of betting? If you are a bettor with no chance of getting inside information or being able to rig the game, then the odds are heavily stacked against you. The information asymmetries are completely skewed against the bettor. If you think about it, investing in shares is also a form of betting. If you are rational, then you must never place a bet unless you have every kind of information possible about that bet and that chances of that happening are next to nothing. Then why is that people constantly bet in games of chance and why is that lotteries and casinos are raking in the money. It comes back again to the basic human instincts of hope and greed. Both are self-reinforcing. The economics of betting is essentially the organisers of betting taking away from money from the gullible bettor.
Source : The Hindu Online
