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>in gambling, the casino has the edge; in speculating, the superior
>system or method has the edge;
The problem with relying exclusively on mathematical expectation as the
discriminator between gambling and speculation is that it makes it very
difficult to actually categorize many activities outside the casino. A
participant in the markets may believe they have an edge, and thus they
classify themselves as speculators. But other than casino games with well
understood stable statistical properties, it is virtually impossible to know
a priori whether an activity actually has an edge or not. An entrepreneur
assumes risk and considers himself a speculator. But what if his idea is
very poor and he fails? Was he then a gambler rather than a speculator
because obviously he didn't have an edge or he wouldn't have failed? But
what if the reason for his failure was some chance condition, and if he was
somehow able to repeated this activity many times, he would come out ahead
more often then not. Now he's back to being a speculator?
Also, distinctions based on expectation do not assist those with sincere
moral convictions that gambling is a sin. Such an individual would generally
not find comfort in being "the house" simply because the house has the edge.
It the very activity of casino gaming, regardless of which side of the table
you are on, that is prohibited.
I believe a better distinction which avoids the difficulties outlined above
is made by classifying the activity by the nature of the risk involved. If
the risk is created "out of thin air" for whatever reason (entertainment,
thrill, or greed) then
the activity is gambling. Although I would lack the ability to author a
statute defining such activity, I know it when I see it. Casinos, track
betting, poker, betting on airline arrivals and departures (ala the Seinfeld
characters Kramer and his Texan buddy...maybe Mark Brown?) are all
participating in the activity of gambling.
On the other hand, if the risk is inherent in some valid economic activity,
then the participants are engaged in the activity of speculation. Starting a
business,
planting
corn, trading in the global marketplace are all speculation. By this
distinction, if being late to a city would result in some economic
disadvantage, some type of insurance or option contract on airline arrival
times would be categorized as speculation.
It is noteworthy that the tools of traditional gambling and speculation are
the same which makes it easy for people to confuse the two. Things like
analysis of edge, bet size selection, and psychology are applied without
distinction to both activities. However, they are not the same activities to
some moralists.
Scott Hoffman
Issaquah, WA
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