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Gambling is the of money or something of value (referred to as "the stakes") on an event with an uncertain outcome with the primary intent of winning money and/or material goods. Gambling thus requires three elements be present: consideration, chance and prize. The outcome of the is often immediate, such as a single roll of dice, a spin of a roulette wheel, or a horse crossing the finish line, but longer time frames are also common, allowing wagers on the outcome of a future sports contest or even an entire sports season.
The term gaming in this context typically refers to instances in which the activity has been specifically permitted by law. The two words are not mutually exclusive; i.e., a "gaming" company offers (legal) "gambling" activities to the public and may be regulated by one of many gaming control boards, for example, the Nevada Gaming Control Board. However, this distinction is not universally observed in the English-speaking world. For instance, in the United Kingdom, the regulator of gambling activities is called the Gambling Commission (not the Gaming Commission). The word is used more frequently since the rise of computer and video games to describe activities that do not necessarily involve wagering, especially online gaming, with the new usage still not having displaced the old usage as the primary definition in common dictionaries.
Gambling is also a major international commercial activity, with the legal gambling market totaling an estimated $335 billion in 2009. In other forms, gambling can be conducted with materials which have a value, but are not real money. For example, players of marbles games might wager marbles, and likewise games of Pogs or Magic: The Gathering can be played with the collectible game pieces (respectively, small discs and trading cards) as stakes, resulting in a meta-game regarding the value of a player's collection of pieces.
Card games, such as Liar's poker, Bridge, Basset, Lansquenet, Piquet, Put, Teen patti
Carnival Games such as The Razzle or Hanky Pank
Coin-tossing games such as Head and Tail, Two-up*
Confidence tricks such as Three-card Monte or the Shell game
Dice-based games, such as Backgammon, Liar's dice, Passe-dix, Hazard, Threes, Pig, or Mexico (or Perudo);
Card counting – Many systems exist for Blackjack to keep track of the ratio of ten values to all others; when this ratio is high the player has an advantage and should increase the amount of their bets. Keeping track of cards dealt confers an advantage in other games as well.
Due-column betting – A variation on fixed profits betting in which the bettor sets a target profit and then calculates a bet size that will make this profit, adding any losses to the target.
- Fixed profits – the stakes vary based on the odds to ensure the same profit from each winning selection.
- Fixed stakes – a traditional system of staking the same amount on each selection.
Kelly – the optimum level to bet to maximize your future median bank level.
Martingale – A system based on staking enough each time to recover losses from previous bet(s) until one wins.
- Emotional or physical risk-taking, where the risk-return ratio is not quantifiable (e.g., skydiving, campaigning for political office, asking someone for a date, etc.)
Insurance is a method of shifting risk from one party to another. Insurers use actuarial methods to calculate appropriate premiums, which is similar to calculating gambling odds. Insurers set their premiums to obtain a long term positive expected return in the same manner that professional gamblers select which bets to make. While insurance is sometimes distinguished from gambling by the requirement of an insurable interest, the equivalent in gambling is simply betting against one's own best interests (e.g., a sports coach betting against his own team to mitigate the financial repercussions of a losing season).
- Situations where the possible return is of secondary importance to the wager/purchase (e.g. entering a raffle in support of a charitable cause)
- Economic utility
- Positive expected returns (at least in the long term)
- Underlying value independent of the risk being undertaken
- Foreign currency exchange (forex) transactions
- Prediction markets
- Securities derivatives, such as options or futures, where the value of the derivative is dependent on the value of the underlying asset at a specific point in time (typically the derivative's associated expiration date)
Preference for likely outcomes. When gambles are selected through a choice process - when people indicate which gamble they prefer from a set of gambles (e.g., win/lose, over/under) - people tend to prefer to bet on the outcome that is more likely to occur. Bettors tend to prefer to bet on favorites in athletic competitions, and sometimes will accept even bets on favorites when offered more favorable bets on the less likely outcome (e.g., an underdog team).
Optimism/Desirability Bias. Gamblers also exhibit optimism, overestimating the likelihood that desired events will occur. Fans of NFL underdog teams, for example, will prefer to bet on their teams at even odds than to bet on the favorite, whether the bet is $5 or $50.
Reluctance to bet against (hedge) desired outcomes. People are reluctant to bet against desired outcomes that are relevant to their identity. Gamblers exhibit reluctance to bet against the success of their preferred U.S. presidential candidates and Major League Baseball, National Football League, National Collegiate Athletic Association (NCAA) basketball, and NCAA hockey teams. More than 45% of NCAA fans in Studies 5 and 6, for instance, turned down a "free" real $5 bet against their team. From a psychological perspective, such a "hedge" creates an interdependence dilemma—a motivational conflict between a short-term monetary gain and the long-term benefits accrued from feelings of identification with and loyalty to a position, person, or group whom the bettor desires to succeed. In economic terms, this conflicted decision can be modeled as a trade-off between the outcome utility gained by hedging (e.g., money) and the diagnostic costs it incurs (e.g., disloyalty). People make inferences about their beliefs and identity from their behavior. If a person is uncertain about an aspect of her identity, such as the extent to which she values a candidate or team, hedging may signal to her that she is not as committed to that candidate or team as she originally believed. If the diagnostic cost of this self-signal and the resulting identity change are substantial, it may outweigh the outcome utility of hedging, and she may reject even very generous hedges.
Ratio bias. Gamblers will prefer gambles with worse odds that are drawn from a large sample (e.g., drawing one of 89 red balls from an urn containing 100 red and blue balls) to better odds that are drawn from a small sample (drawing one of 9 red balls from an urn containing 10 red and blue balls).
- Gambler's fallacy/positive recency bias.
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