Gambling

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Gambling has a specific economic definition, referring to wagering money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Typically, the outcome of the wager is evident within a short period of time.

The term gaming^[1] in this context typically refers to instances in which the activity has been specifically permitted by law. The two words are not mutually exclusive; i.e., a “gaming” company offers (legal) “gambling” activities to the public.^[2] (This distinction is not universally observed in the English-speaking world, however. For instance, in the UK, the regulator of gambling activities is called the Gambling Commission (not the Gaming Commission.^[3])

Legal aspects

Both the Catholic and Jewish traditions traditionally set aside days for gambling,^[4] although religious authorities generally disapprove of gambling to some extent. Gambling can have adverse social consequences. For these social and religious reasons, most legal jurisdictions limit gambling. Some Islamic nations prohibit gambling; most other countries regulate it.^[5]

Many jurisdictions, local as well as national, either ban or heavily control (by licensing) gambling. Such regulation generally leads to gambling tourism and illegal gambling. The involvement of governments, through regulation and taxation, has led to a close connection between many governments and gaming organizations, where legal gambling provides significant government revenue, such as in Monaco or Macau.

Under US federal law, gambling is legal in the United States, and states are free to regulate or prohibit the practice. Gambling has been legal in Nevada since 1931, forming the backbone of the state's economy, Las Vegas is perhaps the best known gambling destination in the world. In 1976, gambling was legalized in Atlantic City, New Jersey, and in 1990, it was legalized in Tunica, Mississippi; both of those cities have developed extensive casino and resort areas since then. Since a favorable US Supreme Court decision in 1987, many Native American tribes have built their own casinos on tribal lands as a way to provide revenue for the tribe. Because the tribes are considered sovereign nations, they are often exempt from state laws banning gambling, and are instead regulated under federal law. Additionally almost all states have legalized gambling in the form of a lottery.

Because contracts of insurance have many features in common with wagers, insurance contracts are often distinguished under law as agreements in which either party has an interest in the "bet-upon" outcome beyond the specific financial terms. E.g.: a “bet” with an insurer on whether one's house will burn down is not gambling, but rather insurance — as the homeowner has an obvious interest in the continued existence of his/her home independent of the purely financial aspects of the "bet" (i.e., the insurance policy).

There is generally legislation requiring that the odds in gaming devices are statistically random, to prevent manufacturers from making some high-payoff results impossible. Since these high-payoffs have very low probability, a house bias can quite easily be missed unless checking the odds carefully.^[6]

Gambling variables

There are three variables common to all forms of gambling:

How much is being wagered, the initial stake (in money or material goods).
The predictability of the event.
- In mechanical or electronic gambling such as lotteries, slot machines and bingo, the results are random and unpredictable; no amount of skill or knowledge (assuming machinery is functioning as intended) can give an advantage in predictability to anyone.
- However, for sports events such as horse racing and soccer matches there is some predictability to the outcome; thus a person with greater knowledge and/or skill will have an advantage over others.
The odds agreed between the two (or more) parties to the wager; where there is a house or a bookmaker, the odds are (quite legally) arranged in favor of the house.

The expected value, positive or negative, is a mathematical calculation using these three variables. The amount wagered determines the scale of an individual wager (bet); the odds and the amount wagered determine the payout if successful; the predictability determines the frequency of success. Finally the frequency of success times the payout minus the amount wagered equals the "expected value" The skill of a gambler lies in understanding and maneuvering the three variables so that the "actual value" is positive over a series of wagers.

Types of gambling

Casino games

While almost any game can be played for money, and any game typically played for money can also be played just for fun, some games are generally offered in a casino setting.

Table games

Blackjack
Pai Gow Poker and Tiles
Poker
Spanish 21
3-card poker
Baccarat (punto banco)
Caribbean Stud Poker
Casino war
Craps
Fan-Tan
Faro
Let It Ride
Pachinko
Pyramid Poker
4-card poker
Red Dog
Sic Bo
Texas Hold'em Bonus Poker
Roulette

Electronic gaming

Slot machine
Video poker

Other gambling

Sports betting
Arbitrage betting
Keno
Bingo

Non-casino gambling games

Gambling games that take place outside of casinos include Bingo (as played in the US and UK), dead pool, lotteries, pull-tab games and scratchcards, and Mahjong.

Other non-casino gambling games include:

Card games, such as Liar's poker, Bridge, Basset, Lansquenet, Piquet, Put, Teen patti
Coin-tossing games such as Head and Tail, Two-up*
Confidence tricks such as Three-card Monte or the Shell game
Carnival Games such as The Razzle or Hanky Pank
Dice-based games, such as Backgammon, Liar's dice, Passe-dix, Hazard, Threes, Pig, or Mexico

*Although coin tossing isn't usually played in a casino, it has been known to be an official gambling game in some Australian casinos^[7]

Fixed-odds gambling

Fixed-odds gambling and Parimutuel betting frequently occur at many types of sporting events. In addition many bookmakers offer fixed odds on a number of non-sports related outcomes, for example the direction and extent of movement of various financial indices, the winner of television competitions such as Big Brother, election results,^[8]. Interactive prediction markets also offer trading on these outcomes, with "shares" of results trading on an open market.

Parimutuel betting

One of the most widespread forms of gambling involves betting on horse or greyhound racing. Wagering may take place through parimutuel pools, or bookmakers may take bets personally. Parimutuel wagers pay off at prices determined by support in the wagering pools, while bookmakers pay off either at the odds offered at the time of accepting the bet; or at the median odds offered by track bookmakers at the time the race started.

Sports betting

Betting on team sports has become an important service industry in many countries. For example, millions of Britons play the football pools every week.

Arbitrage betting

Arbitrage betting is a theoretically risk-free betting system in which every outcome of an event is bet upon so that a known profit will be made by the bettor upon completion of the event, regardless of the outcome. Arbitrage betting is a combination of the ancient art of arbitrage trading and gambling, which has been made possible by the large numbers of bookmakers in the marketplace, creating occasional opportunities for arbitrage.

Other types of betting

One can also bet with another person that a statement is true or false, or that a specified event will happen (a "back bet") or will not happen (a "lay bet") within a specified time. This occurs in particular when two people have opposing but strongly-held views on truth or events. Not only do the parties hope to gain from the bet, they place the bet also to demonstrate their certainty about the issue. Some means of determining the issue at stake must exist. Sometimes the amount bet remains nominal, demonstrating the outcome as one of principle rather than of financial importance.

Betting exchanges allow consumers to both back and lay at odds of their choice. Similar in some ways to a stock exchange, a better may want to back a horse (hoping it will win) or lay a horse (hoping it will lose, effectively acting as bookmaker)

Staking systems

Many betting systems have been created in an attempt to "beat the bookie" but most still accept that no system can make an unprofitable bet profitable over time. Widely-used systems include:

Fixed stakes – a traditional system of staking the same amount on each selection.
Fixed profits – the stakes vary based on the odds to ensure the same profit from each winning selection.
Due-column betting – A variation on fixed profits betting in which the bettor sets a target profit and then calculates a bet size that will make this profit, adding any losses to the target.
Card counting - Many systems exist for Blackjack to keep track of the ratio of ten values to all others; when this ratio is high the player has an advantage and should increase the amount of their bets. Keeping track of cards dealt confers an advantage in other games as well.
Pot odds vs. true odds - In poker, the ratio of the size of the current pot to the bet a player is considering is called "pot odds", which can be compared to the "true odds" of a player completing a winning hand from the cards remaining to be dealt to determine whether to make the bet.
Kelly – the optimum level to bet to maximize your future median bank level.
Martingale – A system based on staking enough each time to recover losses from previous bet(s) until one wins.

Other uses of the term "gambling"

Many risk-return choices are sometimes referred to colloquially as "gambling." Whether this terminology is acceptable is a matter of debate, but generally the following activities are not considered gambling:

Emotional or physical risk-taking, where the risk-return ratio is not quantifiable (e.g., skydiving, campaigning for political office, asking someone for a date, etc.)
Insurance is a method of shifting risk from one party to another. Insurers use actuarial methods to calculate appropriate premiums, which could be considered similar to calculating gambling odds. However, insurers can set their premiums to obtain a long term positive expected return.
Situations where the possible return is a secondary reason for the wager/purchase (e.g. buying a raffle ticket to support a charitable cause)

Investments are also usually not considered gambling, although some investments can involve significant risk. Examples of investments include stocks, bonds and real estate. Starting a business can also be considered a form of investment. Investments are generally not considered gambling when they meet the following criteria:

Positive expected returns (at least in the long term)
Economic utility
Underlying value independent of the risk being undertaken

Some speculative investment activities are particularly risky, but are still usually considered separately from gambling:

Securities derivatives, such as options or futures, where the value of the derivative is dependent on the value of the underlying asset at a specific point in time (typically the derivative's associated expiration date)
Foreign currency exchange (forex) transactions
Prediction markets

Psychological aspects

Studies show that though many people participate in gambling as a form of recreation or even as a means to gain an income, gambling, like any behavior which involves variation in brain chemistry, can become a psychologically addictive and harmful behavior in some people. Reinforcement schedules may also make gamblers persist in gambling even after repeated losses.

The Russian writer Dostoevsky (himself a problem gambler) portrays in his novella The Gambler the psychological implications of gambling and how gambling can affect gamblers. He also associates gambling and the idea of "getting rich quick", suggesting that Russians may have a particular affinity for gambling. Dostoevsky shows the effect of betting money for the chance of gaining more in 19th-century Europe. The association between Russians and gambling has fed legends of the origins of Russian roulette.