So what constitutes gambling?

Image of lettered building blocks spelling the word RISK

Degenerate gambling or informed decisions?

I reckon that "gambling" covers a wide spectrum. At one end, we have the opportunities that, to my mind, represent simple naked, degenerate gambling - betting money on events where you know absolutely nothing at all about what's going on.

An example of this would be buying a scratchcard; you don't know how many of the type you're purchasing were printed, the proportion of these that carry a winning combination, the number of winning cards that have already been sold, and therefore the odds and possible return on your quid (or whatever it is that they cost nowdays). Effectively it's a "Hail Mary" punt (no disrespect to Christians intended), from which a few lucky individuals will pick up a potentially life-changing sum of money. I'm afraid, though, that I'm a bit of a wet blanket, and don't consider the odd tenner, or even fifty quid a "win" - that's more about providing incentives to keep people playing, and these amounts are only ever a "win" if you're lucky enough to have won before the time you've spent the win amount, and never buy another scratchcard ever again.

At the other extreme end of the spectrum are games like Roulette; we know how many slots are on the wheel and what the payouts will be if we win. From these we can calculate the probability of any outcome we bet on, what we'll be paid if we win, and therefore what "edge" (read "disadvantage") we're up against. Everything is known beforehand, and we can choose to play, or not, knowing these. So as all of the aspects of some opportunities, like Roulette, are known does betting on them constitute gambling or an informed decision?

My view, for what it's worth, is that it all depends to what degree individuals educate themselves about the opportunities they bet on. Even though all of the facts are available, and some simple crunching of the underlying numbers can elicit the probabilities of "winning", it's clear that the majority of people do little, if anything, to inform themselves - in such cases, their betting becomes nothing more than a "Hail Mary" punt in the same way as with a scratch card?

At the time of creating this page back in 2012, I'd been following an online forum discussion where a guy could not understand why he always lost more than 2.7% of his twenty quid (or whatever) that he regularly put into the FOBT (Fixed Odds Betting Terminal) at his local highstreet bookies. His view was something was not right. It's highly unlikely that there was anything irregular going on, and until he understands why he lost what he did, and the reason for it, frankly he should stop playing - it's as simple as that. If he feels a compulsion to continue, despite his view that the payouts are "rigged", then I'd suggest he needs to seek professional help.

The maths of probability underpin all "gambling" . . .

Let's look at an example, which I hope shows the difference between gambling and informed decision making:

I've a bag with ten balls in it, with some being white balls and some being black balls. I offer you the opportunity to put fifty quid down, and if you pull out a white ball I'll pay you fifty quid. If you pull out a black ball, then I keep your fifty quid - it's a very simple proposition. Would you do it? At this stage you only know how many balls in total are in the bag, but not how many of each colour. Is this gambling or a bet made on an informed decision?

Let's change the scenario slightly, and say that there are nine white balls in the bag, and just one black ball. Would taking up the offer then make this gambling or a bet made on an informed decision?

In actual fact with nine white balls and one black ball in the bag, you would have a massive mathematical advantage with taking the bet - a 90% probability (9/10) of winning and doubling your money. I've put the numbers that underpin the bag and ten balls proposition in the following table to illustrate this:

Payout if white ball drawn: 1:1

Bag of balls probabilities.
Probability of drawing a white ball
  Probability of white ball    
White Balls Frac Dec % Player Advantage "True Odds Payout" (for a £50 bet)
10 10/10 1.0000 100% 100% NIL
9 9/10 0.9000 90% 80% £5.56
8 8/10 0.8000 80% 60% £12.50
7 7/10 0.7000 70% 40% £21.43
6 6/10 0.6000 60% 20% £33.33
5 5/10 0.5000 50% 0% £50.00
4 4/10 0.4000 40% -20% £75.00
3 3/10 0.3000 30% -40% £116.67
2 2/10 0.2000 20% -60% £200.00
1 1/10 0.1000 10% -80% £450.00
0 0/10 0.0000 0% -100%  

You can see from above, that the "true odds" payout on a £50.00 bet at 1-9 (9-1 on) is only £5.56, but in this case you'd stand to double your money, and thereby pick up an additional £44.44 on the deal (if you won of course). If you took the trial 20 times, the odds of ending up out of pocket are over 500,000,000-1 (6 standard deviations) !

So betting on an event isn't "gambling" then?

I'd say not always, although it's all very subjective of course? When it comes to decision making and gambling, the whole thing can be driven as much by attitudes and emotions as by logic and maths. I once put this proposition to someone I worked with, who was fairly numbers savvy - a qualified accountant by trade. Although she could see the odds were strongly in favour of the party making the bet she said she was completely risk adverse, didn't gamble, and would pass it up. Some people who practice a faith believe that to gamble is wrong and also wouldn't take up the offer on the grounds of their religious beliefs. But in this case, is it gambling or making an informed decision based on the probabilities? I've never known of anyone refusing to make an investment in stocks or shares, or taking out an equity based insurance policy or savings plan on the grounds of their religious convictions. All of these are underpinned with the same risk and reward considerations as can be applied to betting on the next number to come up when throwing a pair of dice.

A decision may also depend on the risks and rewards aspects - in the example above, if it was your last fifty quid would you want to risk it, as there's still a 10% chance of losing? Most "professional" gamblers certainly wouldn't make any bets that carried a 10% risk of ruin (ROR) if playing with a non-replenishable bankroll.

Some would argue that we all "gamble" anyway - every day. Get into your car and drive away, and what are the odds of being involved in a road traffic accident? It depends of course - where you drive, the conditions of the road and weather, the mechanical state of the car, night or day, your style of driving, your age yada yada yada. One thing's for sure, the chances of having an accident are NOT nil (or zero if you want to stick with the numbers), as there's a possibility anyone driving can be involved in one.

There's no doubt that the majority of those who gamble in the UK do so from a position of complete ignorance - of the probabilities of winning and the likely/eventual outcomes. They do so for lots of differing reasons; most will take a responsible approach and gamble for the entertainment value, expecting to lose whatever they put on the line, but treating it as paid entertainment. Unfortunately, some will do so in the hope that they'll win, and genuinely believe that continuing to gamble will increase their chances of doing so. Then there are the compulsive gamblers, for whom the wins and losses are almost an irrelevent aspect of their behaviour - the urge to gamble is merely the symptom of something much deeper - and for whom no amount of understanding the numbers will change anything. These last two categories are the bread and butter customers of the gambling industry who keep the bookies' profit & loss statements buoyant.

In contrast to this, there are the small minority of people who make bets with an "expectation" of winning - the professional punters and advantage players who study hard, find an edge and consistently make money by exploiting it. Very little of their betting is "gambling", with most bets being made in the full knowledge of the odds and as a result of a sound judgement call.

Which group do you fall into?