September 9, 2009

Desperate people don't gamble -- they save

One stereotype I've internalized is that the person who gambles is the schlub who's down on his luck or just going nowhere. What does he have to lose? -- he might as well risk it. I recall two episodes (at least) from one TV show alone featuring this narrative: The Simpsons had Homer betting on a dog race to pull in some Christmas present money during a bad year, and Krusty the Clown bet his last couple of bucks on a horse after a long financial slide.

Therefore, when more and more people feel that they're desperate, unlucky, or going nowhere, they should start gambling more. Conversely, when things look up, they should feel little need to gamble.

I don't know where this story came from -- probably from before the Industrious Revolution (when Europeans started to exhibit more middle-class traits like thriftiness and low time preferences). It's probably like the tales about upper-class murderers -- these plots used to be realistic in the 14th century, but now TV shows like Law & Order are just keeping alive a fairy tale. This also reflects the genetic and cultural change of the Industrious and Industrial Revolutions -- those violent upper classes killed each other off, and they were replaced by the more peaceable nation of shopkeepers.

At any rate, we now know that this gambling story isn't true. During the recent orgy of boominess, people were gambling, speculating, and leveraging like crazy. There was even a hit TV show set in Las Vegas, an epicenter of the housing bubble, about celebrities playing Texas Hold 'Em! And as it turns out, casinos and lotteries are getting hammered as consumers are saving more to pay off their debt after a long leveraging binge that began in the early 1980s. (Everyone who wants to sound cool slams the '80s as a decade of excess, but that continued unabated right up until the current economic meltdown.)

Some narratives make intuitive sense, and may even have been true at some point. But given how radically the world has changed in the past several hundred years, it's worth not taking those stories for granted. We need to update our picture of the world by checking the facts.

4 comments:

  1. I'm confused about what exactly you're claiming here. Are you saying that the "stereotype" that people who gamble are desperate is false? I think you have to distinguish here between the kind of gambling desperate losers engage in (mindlessly wasting money on lottery tickets hoping to get rich), and the gambling a wealthy businessman might partake in (dropping thousands of dollars in card games for leisure). They're qualitatively different. The gambling in the stereotype you're referring to doesn't refer to the kind that wealthy people engage in for leisure.

    "Therefore, when more and more people feel that they're desperate, unlucky, or going nowhere, they should start gambling more. Conversely, when things look up, they should feel little need to gamble."

    I don't think this was ever a normative thing. It was/is just an observation that poor, desperate people tend to gamble. I think it holds up pretty well today, and probably has throughout history. Go to any convenience store and check out the people buying lottery tickets. Or racetracks and OTB (off track betting) shops. You'll see some of the most desperate losers out there.

    "At any rate, we now know that this gambling story isn't true. During the recent orgy of boominess, people were gambling, speculating, and leveraging like crazy."

    Actually, these people were desperate, desperate to maintain their net worth and lifestyles in the face of stagnant incomes and profits. So they had to rely on gambling, taking on excess debt, leveraging, speculating, relaying on inflated asset values to fuel consumption, etc.

    "And as it turns out, casinos and lotteries are getting hammered as consumers are saving more to pay off their debt after a long leveraging binge that began in the early 1980s."

    Right. Those same desperate people who essentially gambled in order to maintain the lifestyles and consumption they were accustomed to in the face of stagnant incomes and excess debt loads are still desperate. But this time they're desperate to repair their horrible balance sheets as the flow of easy credit has stopped.

    The narrative still seems valid to me. The wealthy nobles in the past gambled for leisure quite a bit playing cards and parlor games, as the wealthy do today. And the poor and desperate types that would blow their money on get rick quick schemes and other assorted gambles in the past still are around today.

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  2. As far as I can tell the Times article did not include any data for Indian casinos. Given the growth in this form of gambling within the last decade or so, the missing information makes it difficult to determine whether the recent drop in gambling revenues is really as significant as the article states (of course, it could be worse).

    Peter

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  3. The down on her luck loser that people notice is the gambling addict that is down on her luck because she's wasted all her money and is desperately looking for a payoff to reverse her misfortunes

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  4. I believe your mixing the terms gambling with speculating.

    Gambling in the lottery & casino sense is NEVER about the money. People can be wealthy or very poor and they will keep doing it, its just having to be 'in the action'. You needn't look as far as a GA literature.

    Speculating that's just a 'fear & greed' phenomenon. Right now people are just fearful given the conditions (inflated asset values to). But if they are gamblers, they will keep doing it just to be 'in the action'. Speculators are saving, gamblers will keep on gambling.

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