It's actually somewhat easy... If you are creating financial exposure to an event with no underlying risk to it, and the point is exposure itself, you are gambling.
In your snow example, those guys were gambling on snow for fun. The formal weather derivative - most weather derivatives have parties (usually players in the energy market, sometimes agriculture) who have real underlying risk and aren't entering those contracts to create risk for it's own sake. It's quite hard to get a market off the ground when there is no underlying risk - people purely speculating generally don't generate enough volume to achieve liftoff. Look at Kalshi and the volume on most bets - it's tiny.
The "for fun" part is really important here. Addictive behavior comes from a hijacked dopamine system, into which you slowly get lured in. This makes it applicable to social media, drugs and if you squint, even to broad obsessions.
This doesnt help the gambling distinction though. What activities can take over your neurological reward mechanism? Pretty much everything, like neurotically washing your hands. So you have to factor in societal scale and amount of (potential) harm and this is where the vague debate begins. A key point is a dealer/platform, profiting from your behavior, to exclude neurotics.
A striking observation i made was, that gambling machines have deliberate delays between action (eg pull the lever) and reaction/reward for the brain to create tension and to break it with a dopamine spike. This deliberate design is how the machine exploits your brain and makes you an addict. A similar system is the endless social media feed (or even worse brainrot short videos). You scroll, you see new stuff, you identify content maybe emotionally. Its the same fast stimulus-reward cycle. Meassured in 1-2 seconds, same as gambling machines.
Having "underlying risk" to something just means you invested in it before. So for you it's not a gambling as long as you... have gambled before in the other direction?
Buy bunch of call options? Gambling. Buy a bunch of put options for stock I already hold, somehow honorable investing.
It's all gambling. You can dress it to as having a social purpose, but that's not why most people do it - they want the numbers to go up. The stock market is exactly the same - middle class gambling.
Buying small pieces of businesses isn't gambling. The fact the price moves around a lot isn't the point of it, it's just a result of people buying/selling. In gambling, the risk itself is the point.
> You can dress it to as having a social purpose, but that's not why most people do it - they want the numbers to go up.
Too cynical. This disqualifies basically anything you can do with money. If you put it in a bank to get interest you are solidly into the not-gambling end of the scale. And I don't think an index fund is that much more to the gambling side.
Not really. The question is are you working for your money or are you hoping the money will provide free rent for you. If the latter, you're gambling. The only reason it's relatively risk free is because the system has been thoroughly stitched up in favour of the rent seekers.
I'm confused by the ideas you're combining here. Do you think all forms of rent-seeking are gambling or just ones that involve money in a direct way?
The only risk in a bank deposit is up at the "societal collapse" level. Are you really so extreme as to say that's gambling, and if so isn't having money at all a form of gambling?
The point is largely around expectation. Sure, the base case of putting money in a bank is very safe, but the interest on that is not. Factor in inflation and its pretty easy to get negative returns on bank deposits.
If you fiddle with "investments" with the intent of making money without doing anything else, that's gambling.
Sticking money in the bank with the hope that it's still there next time you come back to it is not really gambling. You're just doing the default thing.
> Factor in inflation and its pretty easy to get negative returns on bank deposits.
But that applies to having money at all. That can't be enough to call it gambling.
> expectation, intent
I understand your argument here, but I disagree. Shifting to the bank that offers the best rate is good management, not gambling. Understanding how interest works and being motivated by interest to do bog-standard money storage doesn't turn that storage into gambling.
> without doing anything else
I don't understand how this connects at all. Maybe it reflects badly on you if you want to turn money into free income, but that doesn't make it any more or less of a gamble. It's a totally different axis.
>But that applies to having money at all. That can't be enough to call it gambling.
It is, because there's no choice not to gamble. You have to make choices, and none of those choices are risk-free. The options are on a scale between low-risk negative-return and high-risk high-return. But the risk is never zero - not even in FDIC insured accounts - and there's an element of randomness involved in the outcomes.
That's the point. There's no option to say "I have this store of value, and if I don't do anything with it it will retain its value forever."
It won't. So you're forced into risk assessment and randomness, not just with money but with assets in general.
This is the foundation of the economy. All non-trivial transactions are based on risk/reward estimates, and some parts of the economy can force risk and hazard on others.
It's not just a casino you can never leave, it's a casino where the management use various tricks to siphon money from your assets into their pockets without giving you any agency over what happens.
If everything is gambling then we lost track of what we were doing and need a new word for what we're trying to regulate. The answer is not to give up because it's a spectrum, it's to mark off thresholds.
There's a difference between unavoidable risk and imposed financial risk, much of which is caused by the financial industry itself.
Being killed by a meteorite is a statistical issue. Having your house stolen by a bank during a manufactured recession is a crime, and should be avoidable.
Yes, that was actually happening after 2008. For example:
Fair point re seeking the best return given the same risk profile.
Allow me to refine my point: It's gambling when you seek to increase your risk profile in the hope of gaining higher returns, without actually doing anything else other than "invest" the money.
> It's gambling when you seek to increase your risk profile in the hope of gaining higher returns
I generally agree, but I don't think it's a binary. If an insured bank is 10% gambling then an index fund is 20% and roulette is 100%. And the snow derivative sounds like it's probably above 80%.
> without actually doing anything else other than "invest" the money.
I don't see why this changes whether it's gambling. Investing in a restaurant and starting your own restaurant are both very risky bets.
Because investing conservatively is not gambling. Your definition of gambling is weirdly associated of how money is made, instead of risk making. Nobody uses this word in this way. Gambling is about of risk. It's not about how you are making the money
For example, it's also possible to be actively taking part in the money making activity while taking unnecessary risk. A person can run his own company but recklessly making bets on the loan or spending decisions. So this is the other side of the story where they are gambling and they are actively working with their money.
That's the point. Most financial investment is really putting money into something higher risk to get a (hopefully) higher return. Most "investing conservatively" is just being a bit more wary as to what risks are acceptable.
> That's the point. Most financial investment is really putting money into something higher risk to get a (hopefully) higher return.
It's about risk adjusted returns, not higher returns. If you are not considering the risk assessment you are objectively wrong. Take my previous example, how is actively working with you money by taking higher risk less gambling, than passively investing for example an all weather portfolio which is designed to preserve the capital? An all weather portfolio is firstly proposed by Ray Dalio to be as conservative as possible to hedge against all kind of risks while hopefully get some gain.
> Most "investing conservatively" is just being a bit more wary as to what risks are acceptable.
That's objectively wrong. For example lots of etf is designed to reduce risk by diversifying the investment. Just take your own just put money in the bank example. Suppose you do not live in stable country US/EU, and your country is having high inflation. How is just putting money in the bank with your country's depreciating currency less risky than let's say you invest in a global portfolio or an all weather portfolio? In this case, by not managing your risk profile, you are taking more risk.
I am only giving out 1 example to show that `Most financial investment is really putting money into something higher` is objectively wrong. It's actually the opposite if you look into how portfolio managing works. Majority of the funds managed for the Sovereign state or the rich are about hedging against the risks, it's the opposite of gambling.
That fact it's the default thing isn't the issue. Putting money in the bank is not gambling because you have the underlying risk no matter what. Just holding cash has risks. Any time you try to take some value today and turn it into value tomorrow, you have risks.
> Not really. The question is are you working for your money or are you hoping the money will provide free rent for you. If the latter, you're gambling.
So putting money in my savings account is gambling, but investing in businesses is not.
@hgomersall: emerging from a lucky orifice is in fact the main thing in life if you think about it. After all, we are collectively a computer made of monkeys, and the function it is computing is natural selection. Kin selection is one aspect of it. Everything else - including money and innovation - is window dressing.
These appeals usually go like this: we should stop providing more free money to the people who are strong enough to go and take it. Individually we are weaker, so let's stop this collectively. But someone needs to lead the collective. And just like that - you have created another strongman who will just take what he can. In other words: Communism.
Why should having money ever give you a return on that? I ask that question in the context of moral philosophy, not a capitalist society. Surely there are better ways to determine how an individual should live that doesn't typically amount to emerging from a lucky orifice?
If you are an oil company entering the futures market to reduce your risk on oil prices, you aren't gambling. If I enter the market and short oil for fun, I'm gambling.
The stock market isn't gambling if you are just buying equities - you are literally purchasing a small stake in a company. The fact that prices move around a lot doesn't make it gambling per se. If I offered a new price on your house every day, it doesn't make your house purchase a gamble.
Reducing risk is a form of gambling. You're just betting on the "please don't" rather than the "please do".
The point is always the same, you want to end up better off than others that didn't buy what you bought.
If the oil futures purchase turns out to have been worthwhile because price went up due either to production going down or demand up, that doesn’t somehow create new oil. You just get to buy it cheaper than others. You coulda yoloed on spy puts and used that money to buy the more expensive oil at market prices and it's all the same. But you call one gambling and another not gambling, idk, it's all similar to me.
No, it isn't. That's just not the definition that is used by people who gamble and are in financial markets. Words have definitions. No one uses the word "gambling" when they buy insurance on their house. They payoff is contingent, but it's not creating risk for it's own sake.
When I invest I don't really care if I end up better off than others. I'm just hoping to catch some slice of the ongoing economic growth so my at-rest wealth doesn't become devalued by inflation.
I'm sure what I bought does better than some others. I'm also sure some others have done better than me. Statistically speaking this has to be true of almost everyone. Probabilistically speaking I'm likely somewhere near the middle of the bell.
Everyone is exposed to those so by that definition nobody would ever be gambling. I was trying to be charitable so assumed the bar was higher in the what-if.
You aren't exposed to football game outcomes, nor dice rolls or cards flipping. I, in california, am not exposed to electricity prices in the northeast. My exposure to wheat prices is extremely small - if I go and bet a lot on wheat going down, I'm gambling.
If you are creating risk that didn't exist, you are gambling.
That definition sounds plausible but breaks down in practice. Every Chicagoan has snowfall-related risk. And conversely, a lot of those guys legally traded where they were not exposed to risk. They were just gambling.
I do think it breaks down in practice for the goal of deciding which given trade/bet is gambling.
I worked for market makers. Their theoretical job is to provide liquidity. They are required to always give a price. So if the theoretical cereal maker wanted to buy a wheat future to reduce risk, the market maker has to offer to sell them one. Then the theoretical farmer comes along later and the market maker buys a matching future and they're back to even.
That by your definition is not gambling. But the fraction of trades that can be justified as actually helping hedge a real risk is very small. Some people trading are pure speculators, pure gamblers. But some of the non-gambler participants will trade in ways that are effectively gambling as well.
I think it's effectively impossible to always tell on a trade by trade basis which ones are gambling. We could say it's all related to hedging, as the law does, but I think that's in practice ridiculous. It's a business filled with degenerate gamblers.
So I return to my point that even though there's no bright line, it's still worth muddling though and finding some practical guidelines.
One side of a trade can be a gamble and the other a hedge. A single transaction doesn't need to be classified as a gamble or hedge - it can be both.
As for the market maker themselves - they are definitely not gambling. They are trying to make money while reducing risk to the extent possible. You don't walk into the risk management committee and get an excited response because you increased risk all else equal, right?
In your snow example, those guys were gambling on snow for fun. The formal weather derivative - most weather derivatives have parties (usually players in the energy market, sometimes agriculture) who have real underlying risk and aren't entering those contracts to create risk for it's own sake. It's quite hard to get a market off the ground when there is no underlying risk - people purely speculating generally don't generate enough volume to achieve liftoff. Look at Kalshi and the volume on most bets - it's tiny.