An Ace That You Can Keep

Most people who are old like me are familiar with the Kenny Rogers song “The Gambler”.  The premise of the song generally is that life involves a series of decisions that require us to analyze risk and reward, much like gambling.

Historically in the United States, opponents of gambling have cited reasons such as increased crime, gambling addition, religious prohibitions, regressive taxation, and the other usual excuses for opposing legalization (except in the case of lotteries, of course, which offer players far worse odds than casino games, as we discussed in a previous post). For the most part, despite a clear desire to the contrary from the American public, the viewpoint of gambling opponents has carried (and continues to carry) the day legally in most places in the US.
Recently I was thinking about Kenny Rogers and his eloquent comparison of being a careful and smart gambler (knowing when to hold ’em and when to fold ’em) with knowing how to make smart decisions in life.  I was struck by how right he was, and how a logical and reasonable and thoughtful person should agree that one’s experiences in learning to calculate risk versus reward in a gambling context could certainly come in handy in learning to make good life decisions.
As a practical matter, isn’t there an element of gamble in everything we do?  Certainly getting behind the wheel of a car, or entering into a relationship with someone, or taking a job, or purchasing a house, or eating at a restaurant, all involve risk and reward. Granted some choices (like crossing the street) involve a lower degree of risk than others (hang gliding for example), however the measure of reward in those two activities is arguably commensurate with their respective risks.
Bear in mind that many forms of gambling include a certain measure of skillful decision making.  In games like craps and blackjack, knowing which bets offer the best odds and basic strategy can improve your likelihood of a positive result.  When you venture over into games like sports betting or poker, the elements of skill and analysis increase dramatically – even to the point some would argue that skill predominates over luck.
In fact, poker has been compared to analogous non-gambling life activities so often and so well that I doubt I can do the comparisons justice, but I will try.  Poker is a game in which each player has limited information.  Each player involved in a hand of poker risks something of value (the “bet”) with the hope and expectation of receiving something of greater value (the “pot”).  The determination of who wins the pot is made partly by factors outside the player’s control (i.e. “luck” or “the luck of the draw”) and partly by good decision making and partly by skill and partly by knowledge.  It is without question that poker players who make good decisions and possess the ability to accurately read people and circumstances and who know the most about the game, in the long run, have the best results.
The same can be said for day traders.  Day trading is essentially short term speculation on stocks.  Day traders typically begin each day by risking something of value (by purchasing stocks, stock options, futures, currencies, etc.) with the hope of receiving something of greater value (selling the same at the end of the day for a price higher than what was paid).  The determination of whether a day trader makes money is determined partly by factors outside the trader’s control (i.e. fluctuations in the market, the behavior and choices of others) and partly by the trader’s good decisions making, skill and knowledge.  The smarter, harder working and best researched day traders without question in the long run will enjoy greater success than their counterparts.
The comparison I like even better however, is the comparison between poker players and farmers.  Farmers risk something of value when they buy their seeds, plant their crops, nurture and tend their fields.  Ultimately farmers hope to receive a positive return on their investment when they harvest and sell their crops.  The determination of whether a farmer makes any money is partly outside the farmer’s control.  A farmer has no say in whether there are floods or droughts or infestations of pests.  Certainly everyone would agree that the farmers that know the most about their craft and who possess the greatest skill and who make the best decisions are the ones who are the most successful.  What really resonates with me about this comparison is this: poker players and farmers both know the experience of making all of the correct decisions, possessing adequate skill and knowledge, and yet ending up in a situation with an undesirable result due to factors outside their control.
Why is this important?  It’s important that we think differently about the role of gambling in our society.  Gambling, which is typically defined as risking something on an outcome that is not within our control for the chance of winning something of value, is really a behavior in which we all engage every day.  For that reason gambling is not something that should be prohibited, but rather something that should be encouraged and taught.  Most of the reasons cited for prohibiting gambling can and should be addressed and managed by education and proper management.  By embracing gambling as a culture, and managing it properly, we will raise future generations of well-reasoned decisions makers.  Like Kenny sings, “every hand’s a winner and every hand’s a loser” – we should be teaching people how to tell the difference instead of forbidding them the experience of ever seeing the hand in the first place.

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