Gambling is a loaded term. When most people talk about gambling, they think of casinos and underground poker matches. Stay away from those types of gambling. They are essentially entertainment venues designed to be addictive whilst rigging the odds against you. In the long run, the Law of Large Numbers will help move money from your pocket to their pocket.
This blog is really more about ventures, bets and risks. Every choice in life is a gamble. When you pick a partner, that person can totally mess up your life or transform it for the better. Should you move to a new job? A new country? Do you fill up the car now or wait a week hoping the prices drop? Life is a series of non-stop gambles. Some people are professional speculators. Traders, executives planning the next quarter, sports coaches deciding the line-up of the players for the night's game.
Very roughly we can introduce a framework to model risk taking.
- Spread of outcomes from positive to negative
- Probability across the spread
- Your own personality, desire for the outcomes and risk tolerance
- General impact on the world
- Opportunity cost
(1) is just about the consequence of your actions. Suppose you put your money on black, you can lose all you money or double it. (2) is closely linked to this, you have a lightly more than 50% chance of losing all your money and a slightly less than 50% change to double your money. A combination of (1) and (2) tells you what the expected outcome will be. In the roulette example, if you play enough times, you'll lose money. Some people can get lucky, some people can get unlucky, but more people get unlucky than lucky.
There are some interesting fallacies and psychological effects to talk about here. For instance the Gambler's Fallacy, which is believing that a short streak of reds means that the next roulette must be a black, even though the events are independent to each other. There is also loss aversion, which is when losing five dollars feels more mentally significant than the joy of gaining five dollars.
(5) so far, we've just been talking about what actions can lead to, but inaction is also a choice. Not leaving Germany in WWII as a persecuted ethnic group had some dire consequences... This is the part I find most people that I've met in my life struggle with and find uncomfortable. There's an implied pressure and chaos to existing itself. If you didn't buy bitcoin in 2010, or didn't send out that job application, or learn an instrument like you always wanted to. I can relate, these are deeply uncomfortable realisations. Not doing anything and being a bit lazy is easy and comforting. But it's a discomfort that all of us should actively confront and live with. This will lead to better decision making in your life. And also, don't stress too hard or become ensnared by Fear Of Missing Out (FOMO). It is ok to miss out on things. You can't live a perfect life, and some times what seem to be losses turn out to be wins with the wisdom of retrospect.
Be aware of opportunity costs, learn your own risk tolerance and make come calculated risky plays in your life. Add a little uncertainty and excitement and enjoy the ride.