Hiram Caton

Australian Rationalist, Spring 1996, pp 47-51

Suppose I offer you a coin-toss game where I pay $0.99 for your win but you pay $1.00 for mine. Would you accept? Chances are you will abuse me for playing you for a fool.

The games offered by casinos, race tracks, and lottos are on odds much worse than 99/100. Yet we crave them. We'll fight to gamble any time, day or night. Easy money lust has been with us since the First Fleet. Seamen gambled, prisoners gambled, captains gambled. Guv was a punter too.

It's in the blood. The licensed gambling industry turns over $60 billion annually; illegal gambling maybe $200 million. We lay out $29 billion on health services, and protest that we can't afford another dollar. That's because we need the dollar for the pokies. We infuse $11 million a day into them. Country-wide we buy 8 million lottery tickets weekly, and Melbourne Cup fever attracts punters from all over. We lead the world in per capita expenditures, weighing in at $400 per person annually.

While we're the champs, Asians aren't far behind. The Hong Kong racing industry turns over $15 billion annually. Singapore high rollers who can't get enough at home fly into Perth and Melbourne to try their luck. But it's not just the high rollers. You can buy a lottery ticket on any downtown street in Malaysia and Thailand. In Bali people have an elaborate theory of luck involving deities, ancestors and talismans.

And Europe? Well, the secret history of democracy's rise is that the blue bloods snuffed their francs at roulette. Couldn't resist the hypnotic wheel and expansive green felt with pretty chips scattered about. But it takes the power of the masses to show what serious stakes are. Lotteries in the UK and Germany offer jackpots in the $50 million zone, drifting up to $60 million. Multi-millionaires are made every week. Most Aussies don't know that they can take a punt on a pot that rich. When they do, watch the current account deficit soar!

Gambling fools lots of people, especially economists. Their theory assumes that consumers are rational actors out to maximise utilities. But when we take a punt on the lottery, or scurry down to the TAB, we buy smoke. Lotto returns $0.60 on every dollar wagered; the pokies and TAB return $0.84; keno $0.80. Picture this as a coin-toss game. When the house edge is one percent, and the bet is $10, in a thousand tosses you will probably transfer $100 to my pocket. You're unlikely to win because, even though your call comes up about half the time, the odds are slightly against you. Your stake is whittled away as the play continues. Transfer this to the pokies and ponies. The house edge means that, on average, it costs you $0.16 each time you watch the reels of a $1 machine spin. You can snuff your $100 stake in minutes. But if you're lucky, the jackpot organ flourish may pipe on the first play. That's the lure.

Economists say that the market is a self-adjusting system where prices fluctuate with supply and demand. Items not in demand disappear. This is the clean-up function. Items not in supply are evoked by demand. This is the growth function. Shoddy goods that come on the market may excite an initial demand; but when consumers learn they're shoddy, they're driven out or sink to the market's bottom end. That's the theory. Gambling melts it down. Despite losing many a stake, punters come back for more punishment. They admit that it's a mug's game, yet merrily shop at the TAB, hopeful of buying $200 for $10. In the theory used to model rational choice, gamblers play 'sucker games.' That's because loss is virtually certain over long runs and highly probable over short runs. Rational actors, the theory predicts, discontinue sucker games when they become aware of them. Only an odd bod chooses to lose. But hordes of us thrust $9 billion a year into the pockets of the gentlemen driving Bentleys. It's an open swindle, yet we crave it. Why do we insist on making the rich richer?

Economists have the answer. They say that gamblers purchase leisure. A lot of it; in the USA, $345 billion annually. A dollar in the pokie is no different from a dollar dropped in the video arcade machine. The commodity purchased is gratification. The leisure industry wants to identify those gratifications, so that promotions and gambling venues can cater to them. Psychologists working for Las Vegas say that gamblers are lured by the thrill of the chase. This thrill is the adrenalin rush of risk-taking. The dance of hormones brightens your day. (That's why the promos show jubilant faces, and why a giant sign on the main road out of Vegas hollers: 'Bet you had fun!'). Gamblers not only feel better, they are better for the bout of gambling. The hormone hit is good for you in the way that jogging is good for you. It stimulates the immune system. Relieves stress. Jump-starts sluggish life forces. So they say in Vegas. Economists nod sagely: 'Right, gambling is entertaining naturopathy. Double value for money. No problem with the theory.'

It's all puffery. Well, mostly puffery. Sure, gratuitous risk-taking gives some people the hormone surge. People bungy-jump, scamper untethered up vertical rock faces, leap from aircraft, fight pitched battles at Bathurst, just for the hell of it. But they're nutters, and their idea of leisure gives most of us the shivers. They don't risk their necks because they are rational actors; they do it because they are irrational . Market values prove it. Look at the insurance premiums for motor racers and jockeys. Premiums are derived by cold-blooded actuarial calculations. If you steer a car, bike, or horse for a living, the odds are that some day you'll be in traction.

Vegas pundits say that the thrill of the chase has two components. One is the lure of easy money--the grand slam that transforms the Toad into a Prince. The fantasy is fed by intermittent wins; by boasting in pubs and clubs; by legends about super winners; by promos that picture the magic metamorphosis (copied by Toyota: 'Oh, what a feeling!'). Notice, though, that the underside of the Scratch-It patch isn't exposed. The adrenalin might bog down. It might even go into hibernation, plunging the gambler into gloom. The household budget is ruined, the plastic credit is maxed-out, the car is repossessed, the family moves in with grandparents. And the scary thing is, this fate is shared by big winners. Within a year or two, most have dissipated their winnings and their savings, ruined by an affluent style they can't sustain.

Malignant fortune is the constant experience of gamblers. Across the street from Brisbane's Treasury Casino, the Cash Inn pawn company does a brisk business, taking anything from watches to pleasure boats as collateral. House psychologists don't mention these negative experiences, and agencies never base a promo on the losing experience. A great unmade promo would show the battered gamester, with a black eye and a fist full of dollars, redeeming his Rolex from the pawn shop and shouting triumphantly, 'Sweet Revenge!' Or picture a silken beauty dropping a bundle at baccarat without a twitch, while birdwatchers whisper admiringly, 'Now there's a gutsy lady!' It's curious that our Benevolent Keeper smites untruthful tobacco advertising, but doesn't require a financial health warning at moneymatic installations in gambling venues. He doesn't even require that the house edge be posted. Benevolent Keeper takes the view that it's no business of government to impede the flow of cash from shallow to deep pockets. Consenting adults do what they do.

The other component of the lure is play. The ultimate in play fantasy rises from the sands of the Nevada desert. Gigantic hyper-active signs, dream world architecture and layout, and non-stop entertainment all conspire to create the aura of a never-ending theme park. It's a stupefying total environment that unplugs your logic circuits. All reminders of hard-edged reality are extinguished by endlessly repeated Toad to Prince diaramas and light shows. Dumbing down for children boosts Vegas as a family holiday destination and gives adults permission to consume fun along with the kids. Yet there is a serious side to play. Just as children can be totally absorbed in Ninjin adventure, so gamesters costume themselves in a character tailored to a specific game. To believe that you're a winner, you need a game that fits your style. Lotto players don't go near the TAB. Black tie baccarat gamesters wouldn't be caught dead at the Two-up pit. Slot players are very picky about which machines they play. Blokes play the slots, craps and the pools, but blackjack isn't their game. A game's got to be in your blood. Without the feel of it you can't play hunches. That's where the luck is, in those hunches. Not that gamesters orient only by intuition. Some are even intellectual. At the track you can watch the form betters absorbed in complicated numerical cogitation. At blackjack stony-faced Asians always stay at 13 and always double down. They know that the house edge on blackjack is only one percent and they're out to reap the benefits. Roulette players are veritable scholars. They develop rules about slip betting and square betting, doubling bets, how many numbers to cover, when not to bet.

Truly dedicated gamesters are obsessed with inventing The System. It's every gambler's dream to join the heroes of the sport by breaking the bank. They speak reverently of predecessors whose labours nearly bore fruit the Nobel Prize in gambling, The System, yearns to be born. The fantasy illustrates that to the gambler's mind, any strategy is better than no strategy. People don't pick lotto numbers from the air. They use birth dates or auto number plates or tarot cards. Methodical people scrutinise winning lotto numbers over a long period, to work out which have appeared least frequently. They imagine that those are the numbers more likely to come up in future draws. The zest of gambling is the challenge to wit. It's a point of honor to win against the odds. Nobody has worked out how many man-days are poured into polishing betting systems. Enough to run Telstra's accounts section? The taxation office? It's anyone's guess.

But it's wasted time. No system is worth a dollar. Strategies can stretch your stake but won't put you in the black. They are illusions, rooted in the master blunder: refusal to accept that games of chance are what gambling bosses say they are. The illusion of a winning strategy arises from the reality of the many combinations of varying odds built into most games. Those who like tallying figures soon work out that some bets are better than others. That leads to the fatal blunder: belief that somewhere in the jungle of probabilities there must be winning odds. There aren't. Regardless of the strategy superimposed on the fall of the cards or the spin of the wheel, outcomes are determined by the laws of random events generated by randomising devices like dice. Games are set up so that the house has the edge. The only rational actors in gambling establishments are the bosses. The one proven formula for winning at baccarat is to buy a casino.

It's the same with racing, only a little more complicated. The TAB doesn't know which horse will win, but the odds are calculated so that no matter how the ponies finish, the TAB pocket 16 percent. There is only one win formula, and the TAB is its custodian. Legends to the contrary abound. They create the market for computer betting systems that fast-talkers sell for about $30,000. Shop talk also says that somewhere out there are betting syndicates that earn a steady 6-8 percent. This could be true. These phantom associations turn the trick by parasitising the TAB's algorithm. It's not illegal, but the entry threshold is high. Advanced mathematics, trusted mates, computer time to crunch numbers, and a strategy of small gains over long runs seem to be requisite. Punters are unlikely to penetrate these silent associations, but dreams of the encounter figure among the aspirins of hope.

So the bottom line is plain. If the gambling industry hadn't already won the Nobel Prize for gambling, it wouldn't be in business. As it is, their percentage of the turnover is highly predictable. It's amazing that smart people don't work this out, despite strong hints. When a TV interviewer asked the boss of a newly opened casino whether he feared that someone would break the bank, he answered: 'The lamb taken to slaughter might kill the butcher, but we bet on the butcher.' He added: 'I never gamble myself.' You can't be more frank, yet gamesters sleepwalk past it. Gambling has a hypnotic effect, like falling in love. The lover's world feels different. Stronger, more vital, exhilarating. You're ten feet tall and bulletproof. That's the gambler too.

Looking more closely at common strategies, we find a storm of blunders.

• Take the concept of luck. For many Asians, luck is a presiding World Presence, sharing with Buddha the distribution of fortune and misfortune. Everyone has 'a luck.' They are born with it; some are 'born lucky.' Luck can be influenced by talismans, prayers, fasting, and candle burning. Asians bet when they feel lucky. They search out lucky numbers, times, and places. They don't wonder how the dice decide which of the charms from around the roulette table to reward. They don't ask what charms the casino uses to polish its luck. It's simple. The casino never bets on luck. It bets on the law of random events. Mathematicians call it the Bernoulli Theorem. It long ago won the Nobel Prize for predicting iterated random events.
• Then there is the frequency distribution error. Since five, thirty-one, and seventeen came up only three times in the last fifty lotto draws, shrewd gamblers suppose that they are 'due' to be drawn. The same logic prevails at the craps and roulette tables. However, since random events are independent (that's why they are random), the probability of five appearing in the next lotto draw is unaffected by previous draws. The strategy is worthless. Kids are taught this in school, but it doesn't stick. Something about the human mind refuses to accept that events important to life may be random. The repugnance is one of our necessary illusions, like belief in a just world. The two are related. If significant life outcomes are chance events, that tears the fabric of meaning.
• Winning rewards gamesters with that 'Oh, what a feeling!' feeling. They congratulate themselves on their shrewdness and persistence. You can hear them say that they deserved to win, even earned it. They also boast of 'wrecking revenge' on the TAB, or of 'savaging' the baccarat bank. It would be churlish to disenchant this spirit world by suggesting that the outcomes were random.

Disenchantment is unlikely. Governments may rest easy: enlightenment is useless. Self will not countenance the idea that its clever play had no influence on favorable outcomes, or that bad outcomes were the luck of the draw. It's the same impulse that attributes hidden purpose to coincidence. Ego insists on endowing impersonal events with personal meaning. Clergy of a former time expressed this mental bent when they condemned gambling because it appealed to Providence to promote vice. Their thought was that luck and chance are profane names for the divine will, so gambling takes the Lord's name in vain. The same denial of chance occurs in response to natural catastrophes and personal misfortune. An edifying moral purpose is discovered. Mothers who birth infants afflicted with genetic disorders often blame themselves. What did I do to make my baby suffer?, they ask the counsellor. Saying that it was a random draw in the genetic lottery is emotionally sterile. The same goes for the healthy infant. Proud parents don't bless their luck. They bless Providence, or their good constitution, or both. Christopher Reeve got it right when he explained his cheerfulness in the midst of quadriplegia: 'Life is like a game of cards. You play the hand you're dealt.' The Lord giveth and the Lord taketh away. Desert doesn't come into it.

Painful though it is, there's no getting around the fact that all forms of legal gambling are sucker games. We're mugs for accepting the game, and mugs again in devising clever strategies. Dumbed-down to the tune of $9 billion a year. And that's just the beginning. I've mentioned that the effort dedicated to perfecting systems might operate Telstra's accounts department. More tangibly, most punters are paying off a mortgage at 9-12 percent. $9 billion reallocated from gambling to mortgage payment would reduce the annual interest charges by maybe $90,000,000. Since this saving is compounded annually, punters who rationalised their domestic budgets might reduce their debt cost by 20-40 percent. That would subtract assets from the finance industry by sequestering them among ex-gamblers. Would this be a rational resource allocation? At a time when governments tremble at the financial blow-out of an aging population, the answer must be Yes. Add to that the fact that gambling revenues are on a steep upward curve, with no sign of peaking. Despite that, economists (Allah's mercy on them) say that gambling is a rational expenditure on leisure. Then there is the fall-out costs of broken marriages, failed businesses, alcoholism, domestic violence, rehabilitation, paid largely from the public purse.

The humiliating conclusion that we're a bunch of mugs can be avoided if what seems to be the infinitely repeated Toad to Prince fantasy is really concealed altruism. At first the idea seems wacky. Can it be seriously proposed that people flock to the race course to battle on behalf of the disadvantaged?

Let's go down market to bingo. It's a jolly occasion. For winners it is good, but for losers it's also good, because the dollars left behind go to Father Clancy's fund for the sick. It's the same with art union raffles. By donating $100 to Boys Town, I contribute to a good cause and get ten chances on a fancy house. No need to work out whether my motive is acquisitive or caring. They lock in together. Gambling duplicates this mingling of motives. The government cut doesn't go into general revenues. It's ear-marked for community projects, education, and other good causes that have a tangible presence. Some of the lost stake comes back.

This arrangement provides the public rationale for gambling. It means that you can't call it an outright swindle. If you do, some minister is sure to posture righteously about the many good works done by gambling revenues. That the same good works are done through conventional revenue will not be mentioned. But we know what the minister means. Gambling is a 'painless' revenue source because, absorbed in play, gamblers don't notice the tax.

They also don't notice that bosses eliminate competition in the offer of odds. All of New South Wales' 74,000 pokies offer the same 84/100 odds. But in Vegas, price competition has pushed the house edge down to two percent in some venues. We vegemite eaters meekly accept what our Betters provide. Maybe we would whine if we knew.

We also embrace the pillow of consolation provided by the public rationale for legal gambling. We didn't really liquidate the family business to buy Armani suits for the gentlemen in Bentleys. We donated it to good works. Meanwhile the casino boss, cruising the packed house, straightens his Armani and muses, 'lamb chops.'

There may be more insidious ways to harness consumer choice to regressive taxation, but I can't think of one.

I wish to thank Mark Craddock and David Edelman for their comments on this essay.

Neither psychologists nor economists note that the ecstasy experience is due to endorphines, not to adrenalin. The release of adrenalin triggers endorphine release; hence the association between risk perception and being 'sky high'. Endorphines and morphine are of the same chemical group. Risk-taking 'addicts' are literally hooked on a morphine habit.