Tuesday, August 28, 2007

Casinos and capitalism

Macao is expanding as a center of gambling. Native American tribes use their unique status as domestic dependent nations to open and run casinos. Las Vegas is more successful that ever. Gambling in Atlantic City filled coffers when the boardwalk was no longer so attractive to middle class tourists seeking sea air and amusement rides. Betting on sports and internet gambling are here to stay. Lotteries fund government programs. in many countries. And there is always Monte Carlo.

A lot of money changes hands in gambling every day around the world. And, a lot on money changes hands every day in securities markets too. Gambling has long been condemned by moralists as a vice but securities markets are key to getting the benefits of economic growth and higher standards of living.

Casinos nourish with care and skill our propensity to fall for "irrational exuberance." In casinos on Native American reservations here in Minnesota I have watched as the room of slot machines empties of patrons as the house wins over and over. Then, suddenly, as if by accident some machine gives forth a big payout. Bells ring, lights go one and off and - patrons rush back into the room to jump on the bandwagon by giving up more coinage.

One casino in Wisconsin advertised that it had the "loosest slots around" - paying back $.97 for every $1.00 wagered. It was a 100% guaranteed losing proposition for customers on average, but the ads worked - people came convinced that they would be the ones to beat the average.

So what drives gambling? Some greed gene in our core personality that drives us on beyond where mature consideration would take us? It is only about the money? I think not. Gambling allows us to think that we might be special, different, lucky, graced with inner advantage. We like, perhaps need, that feeling.

And there is the thrill of risk, of walking on the edge, of life having tension and excitement, of anticipation for the unexpected. "Maybe this time ... Look at me. I'm a daredevil and you're not!" It is a feeling of exuberance, somewhat rational actually, that we enjoy. Gambling is a kind of distraction and entertainment. It's more than the money, its the odds.

Capitalism is different; it is time on task.

Money is to be made in business, to be sure; and for some a desire to have money is a key driver of behaviors. But the profit incentive must be encased in relationships to bring about the desired result of wealth.

Gambling is all about me; capitalism is about us.

Steve Young


2 comments:

Mark Frazier said...

Congratulations on the new CRT blog!

I like and essentially agree with your insight that "gambling is all about me, capitalism is all about us."

Still, what of the cases where opportunities to gamble yield social gains?

Prediction markets, for example, enable people to place self-interested wagers on possible events in ways that help "us" -- whether colleagues in a capitalist or a social venture -- to better anticipate and adapt to the future.

The "X-Prize" challenges and Innocentive.com award system (now being extended by the Rockefeller Foundation to advance social ends) also encourage people to gamble their effort and resources in self-interested ways for broader benefit.

Perhaps a distinction should be made between forms of gambling that rely on chance or not-to-be shared private insights and skills, vs those that offer rewards for individuals to act in ways that enrich the commons?

Look forward to exploring the ideas further.

Mark Frazier
Openworld.com and OpenworldInstitute.org

steve young said...

Mark:

I like your distinction between forms of gambling. I hadn't really thought of it. One argument for deeply liquid equity markets is that the desire of people to truck and barter in securities enhances the common good by putting capital out as a commodity for companies to access.

Steve Young