Difference between insurance speculation and gambling At the end of Q119, it operated 11 gaming halls in Panama with difference between insurance speculation and gambling 2,940 slot machines, 306 table seats and eight sports-betting locations. Doubling when holding such a hand is more rare and less important than doubling when holding a hard hand.
![Difference between insurance and gambling Difference between insurance and gambling](https://blog.betway.com/media/width1220/13093/blackjack.jpg)
- The main difference between speculating and investing is the amount of of risk undertaken in the trade. Typically, high-risk trades that are almost akin to gambling fall under the umbrella of speculation, whereas lower-risk investments based on fundamentals and analysis fall into the category of investing.
- The main difference between speculating and investing is the amount of of risk undertaken in the trade. Typically, high-risk trades that are almost akin to gambling fall under the umbrella of speculation, whereas lower-risk investments based on fundamentals and analysis fall into the category of investing.
- Insurance is a price paid to someone else to transfer risk of loss. Gambling is a price paid to someone else for the potential of gain. Insurance takes a naturally existing risk and transfers it from one entity to another. Gambling creates an artificial risk.
Gambling vs Insurance: What is the real difference?
Insurance, it is often said, covers the risk of loss by sharing the cost of replacing that loss among all the members of an insured group. But if insurance is about managing risk, some people ask, how is that any different from gambling?
Gambling is the act of risking something of value on the outcome of an event such as a coin toss, a sporting event, or a game of chance like blackjack or playing slot machines.
If insurance is about managing risk and gambling is about taking risk, then is there some way that these two things are connected? Well, yes, if you concede that people use some of the same words when talking about insurance and gambling. But let’s take a closer look at how both insurance and gambling work and then compare them again.
What is Risk? Let Us Start with That
Risk is where you are exposed to some kind of loss. You risk the loss of your home in a hurricane. Well, gamblers risk the loss of their stakes (the money they bet). So it sounds like there is risk involved in both insurance and gambling. But that’s not really the case.
We insure against against the risk of loss. That is to say that we promise to help each other recover, repair, or replace whatever has been unexpectedly loss through insurance. Insurance is like a limited tax that is collected for the good of the group of insured people.
Through insurance we reduce risk by minimizing true or actual loss. But nothing comes for free. Insurance is based on everyone in the group helping to underwrite each other’s losses.
In gambling you willfully and knowingly expose yourself to possible loss. You take risks when you gamble with the understanding that if you lose your wager there will be no one there to help you share the loss. Well, there are gambling syndicates, of course. But they do not work the same way as insurance risk groups.
An insurance plan collects money from a group of people who face a similar risk of loss. The purpose of the collection is to replace all of the expected loss. Experience teaches us that when a storm comes through a community a certain percentage of property will be damaged. Through insurance premiums we hope to collect enough money in advance to be able to replace, repair, or recover all of the lost or damaged property after the storm. No one will come out ahead when they collect insurance.
A gamble is a situation where you risk the loss of something of value in exchange for the (random) chance of gaining something of value. There are always winners and losers in gambling. Someone comes out ahead and someone comes out behind.
So we can say that insurance seeks to minimize risk by maintaining or restoring the financial status quo whereas gambling seeks to maximize risk with the intention of changing the status quo.
What Is Loss? How Does that Differ between Gambling and Insurance?
When you gamble whatever you lose is gone forever. You may be able to win it back later but if you stop gambling after you lose your stake then you have lost your stake for good. Some people keep gambling until they have nothing left to gamble.
The ancient Roman writer Tacitus described the Germanic tribes who lived to the north of the empire as loving gambling so much that when their men had lost everything else they would gamble themselves into slavery in the hope of winning back their lost fortunes. Historians argue over how true Tacitus’ account was but it illustrates the worst potential outcome from gambling.
Historians teach us that ancient merchants invented insurance by promising to help replace each other’s losses at sea due to storm or piracy. All of the merchants made the same commitment so that if one of their group lost a ship or its trade goods the others would replace the loss. In this way they all worked together for their mutual success.
The word insurance was derived from an older word, assurance, which was a pledge or a promise or a guarantee made under solemn oath. Leaders gave assurance of their good will and peaceful intentions to each other in the ancient world, often by giving up hostages to each other. By risking the loss of the lives of loved ones the leaders, it was hoped, would be more open to peaceful solutions to conflicts between groups.
Merchants adapted the word assurance to their own needs as they gave assurances to each other that they would help replace losses when the need arose. From these informal assurances came the modern system and word insurance.
![Between Between](/uploads/1/2/5/2/125258441/901737603.png)
How Does Gambling Differ from Insurance? The Simple Explanation
Gambling intentionally puts up a stake that the gambler is willing to lose.
Insurance collects payments against replacing, repairing, or recovering property that an owner is unwilling to lose.
Gambling is the intentional and willful exposure of one’s self or assets to the risk of loss.
Insurance is the collective intent to protect group members from exposure to the risk of loss through accident, theft, illness, or death.
In other words, gambling plunges into risk and potential loss in the hope of gaining something whereas insurance seeks to avoid or minimize loss because there is no gain to be had from risking the loss.
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Right before the 2010 Super Bowl, a page 1 article in the February 5, 2010 Wall Street Journal opened with this sentence:
“Investors are sometimes accused of treating the stock market like a casino. Now, one Wall Street firm wants to treat casinos like the stock market.”
Difference Between Insurance Speculation And Gambling Companies
The article details the decision of a Wall Street bond-trading company to take over the management of sports betting at a new Las Vegas casino. Lee Amaitis, the company executive who runs the betting operation, says the firm got into sports gambling because “we wanted to turn gamblers into traders.” Using sophisticated financial-markets software, bettors can not only bet on the final outcome, but also make wagers on events during the game, such as whether the next pass might be completed, or who kicks next field goal.
On several occasions, the article noted similarities between investing and gambling. The article even featured a bond trader-turned-professional gambler who said “Wall Street is just a form of legalized gambling.”
Is investing just a form of gambling? For many investors, the answer may be “yes.” But it doesn’t have to be. And it probably shouldn’t be.
In July 2000, Tom Murkco, the CEO of Investor-Guide.com, published an essay titled “What is the difference between gambling and investing?” While Murkco noted that many aspects of gambling and investing might appear similar, there were several distinct and easily defined differences.
For either investing or gambling, the beginning of Murkco’s definition is the same: An activity in which money is put at risk for the purpose of making a profit.
But while the purpose of gambling and investing is identical, the methods by which the purposes are achieved are drastically different.
Here are Murkco’s distinctions:
Here are Murkco’s distinctions:
When someone invests…
- sufficient research has been conducted;
- the odds are favorable;
- the behavior is risk-averse;
- a systematic approach is being taken;
- emotions such as greed and fear play no role;
- the activity is ongoing and done as part of a
- long-term plan;
- the activity is not motivated solely by entertainment or compulsion;
- ownership of something tangible is involved;
- a net positive economic effect results.”
When someone gambles…
- little or no research has been conducted;
- the odds are unfavorable;
- the behavior is risk-seeking;
- an unsystematic approach is being taken;
- emotions such as greed and fear play a role;
- the activity is a discrete event or series of discrete events not done as part of a long-term plan;
- the activity is significantly motivated by entertainment or compulsion;
- ownership of something tangible is not involved;
- no net economic effect results.
When defined this way, it’s easy to see the differences between investing and gambling. It’s also easy to see that because of the methods some people use to invest, their behavior may more closely resemble gambling.
For example, industry studies have repeatedly shown that the behavior of mutual fund investors often accounts for poor investment performance. Because they don’t approach investing systematically, emotions like greed and fear may cause people to make impulsive decisions, with little or no research. Not surprisingly, the results from these methods more often resemble the returns from lottery tickets.
Not Gambling with Your Investments: Easier said than done?
In his book, Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes With Your Money,author David Adler says it’s the psychological component of investing that is the most difficult to manage. Adler contends that behavioral research shows many individuals have an almost over-whelming set of hard-wired dispositions to take gambles rather than make investments. Adler quotes Andrew Lo, an MIT professor of finance:
In his book, Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes With Your Money,author David Adler says it’s the psychological component of investing that is the most difficult to manage. Adler contends that behavioral research shows many individuals have an almost over-whelming set of hard-wired dispositions to take gambles rather than make investments. Adler quotes Andrew Lo, an MIT professor of finance:
“The same neural circuitry that responds to cocaine, food, and sex has been shown to be activated by monetary gain as well.”
For some people, the thrill of investing/gambling can be addictive. But when the stakes are one’s financial future or retirement, or your children’s college education, the need for a thrill shouldn’t come by jeopardizing one’s investments.
This imperative to not compromise investing by gambling highlights one of the greatest benefits of working with a team of financial professionals: Besides receiving informed advice, a financial professional can often serve as a protection against gambling with your investments, by encouraging you to make sound decisions based on good research that have a high likelihood of success.
Take a moment to consider the last few major financial decisions you’ve made in the past year. Then look at the list above. Did you make an investment or take a gamble?