Charlie Munger on Gambling, Trading and Cricket Betting | Value Research Betting, whether on investments or on cricket, is more addictive than gambling...
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Charlie Munger on Gambling, Trading and Cricket Betting

Betting, whether on investments or on cricket, is more addictive than gambling...

The noise over fixing in cricket brought a lot of attention to the extraordinary amount of betting and gambling that goes on in India, despite almost all of it being illegal. We have a handful of legal casinos in India, and some amount of betting on horse-racing and that's about all. And then there are those who insist that much of the short-term trading on the stock markets is gambling.

The other day, I met someone who--from first hand experience, I suspect--insisted that what happens in both cricket and day-trading is not gambling but betting. I'd never thought about the distinction but a little digging on the Internet turned up a fascinating commentary on this idea by Charlie Munger, Warren Buffett's partner. In a now-famous speech on 'The Psychology of Human Misjudgment' that Munger gave at a business school more than a decade ago, he talked of biases that made people make erroneous decisions.

One of these was what he called a 'bias from mis-gambling'. Munger says that gambling is extremely addictive behaviour but paradoxically, it's more addictive when the gambler has some illusion of control. Lottery systems in which the buyer can choose his numbers have proven to be far more popular and addictive than ones where numbers are pre-assigned. It's their own number, rather than one just handed out by some system. People feel that since they chose the number, it's special in some way, either by luck or skill.

And this is precisely the distinction that gamblers make between gambling and betting. Betting supposedly involves some skill or knowledge or at least instinct, which is also the fig leaf behind which betting on horse racing is legal in India. The problem is that this fig leaf is comfortably large when it comes to trading in stocks. Not only can one pretend that it requires skill but that it's actually investment, and that's what it makes it so dangerous, unlike betting on cricket or horses.




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