Gambling: The sure way of getting nothing for something — Wilson Mizner.

Gambling is public, or often, privately conducted. It is confusing to us personally to understand the reasoning and motivation behind gambling itself. We will hold back our cash and fight endlessly to get the “very best price” on a refrigerator, for instance, but won’t blink an eye at the cash (or credit) we can feed into a slot machine in an hour, or throw on a roulette wheel.

Human financial behaviour studies indicate that we are extremely good at rationalisation. The same amount of money is compartmentalised differently, for example, an entertainment bucket is fun thereby spending is fine, but those necessary buckets — well we had better get our money’s worth every time, or we won’t spend a cent.

The thing about gambling is that it is everywhere. Accordingly, you can bet on anything: Megabucks, slots, cards, horses, Bingo, Jai alai, betting parlours, sports, politics, dice, raffles, investments, even human conflict. Witness the festive carnival game scene where a winner is identified twofold: by the enormous amount of cash he has used up to win (almost always), and the monster pink stuffed rabbit he is now carrying home.

Not so memorable experiences. At a carnival fair decades ago, our eight-year-old nephew had a dollar to spend. We stopped in front of the “knock down the bottle” to win a large stuffed toy. His eyes were huge, it looked so easy. He displayed facial indecision, almost agony, this was his weekly allowance and there was so much to do and wonderful treats to buy. Abruptly, he tendered his dollar to the vendor hawker-in-charge. He stepped up, he threw, he missed.

There was the devastation of loss, the huge tears and a sad little face. It was hard to watch, with little consolation to him to know that we’ve all been through it. Just one of those nasty little life reality lessons. And one that we never forget.

Rational thinking overrides. Most of us are unable to resist the primal allure and the urge — to gamble one more time. Some play the odds better than others. Cold, clear, logic to calculate the odds. When not in their favour, they methodically walk away. The rest of us, well, we still have that hope of winning big.

What are the real odds of winning?

Gambling has been around for more than 5,000 years, back to the Egyptian era, according to BBC statistician David Spiegelhalter. “The Romans loved to gamble; even the Emperor Claudius wrote a book, How to Win at Dice. They had yet to define gambling by using statistical mathematics.”

Is gambling really just our illogical notion of hope, and random odds equals pure random success?

In the late 1600s, an inveterate gambler and two mathematicians discovered the scientific method to literally calculate the probability of odds of winning, Mr Spiegelhalter’s research reveals. He has written a fascinating article on how to look through the numbers to discover which form of betting gives you the best chance of winning a six-figure sum.

Those of you getting primed up, hoping to win, should have a good read. Perhaps, you will even increase the odds in your favour.

Just a thought, dear readers. Let’s face it. Most of us know that we do not have the maths skills to run a statistical analysis on any form of gambling; we can barely keep track of our family budget.

Ah, but now you do have an excuse. You can feel free to blame it on your ancestral heritage urges if you have to toss that dice a few more times at the Crown and Anchor.

Sudden money brings irrevocable change

What happens if you do win big?

Some readers may think, “well, if I had a large sum drop into my life, I know exactly what I would do: a boat sailing off into the sunset, a cruise around the world, a large, large diamond ring, a beautifully decorated waterside home. It would not be a problem for me at all, to figure out how to spend the money”.

Amazingly, the choices are not clear. In fact, the choosing what to do brings into the forefront the very essence of that person. Who are you? What are your values? How do you handle the envy and bitterness of friends? Yes, it sure does happen, winners often experience loneliness and isolation from their community. Everyone wants a piece of your good fortune. How do you decide to select the truly needy from the merely greedy now that the perception is that you can afford just about anything?

Like it or not, dollars from the sky will change your life, irrevocably. Frankly, big Winners of lotteries don’t fair well at all. Statistically, they handle their finances so poorly and the impact of life changes is so great that the average length of time to lose the entire fortune is three years.

Here is a true tale of megabucks. All personal information has been changed to provide confidentiality.

He had been a non-performer throughout his high school years, not because of intelligence, but rather lack of interest. So he set to work in his father’s electrical business, appalled to realise early on the business was in decline. Disillusionment set in, exacerbated by his father stating broadly and frequently the message that the son purchase the family business thereby by providing dad with his family retirement annuity.

Lo and behold, he wins the $2 million Megabucks Sweepstakes. The lump sum is divvied up: 38 per cent to US IRS right upfront, a substantial over-premium to his dad (how can you turn your family down?). He ploughs another huge chunk of the winnings into the family business. His spouse wants an upscale home, after all they are rich now, aren’t they? Even so, he decides to finance the new home purchase.

The business fails. He settles creditor claims then decides on a life change, financing his own full-time university education using the winnings to maintain the family lifestyle.

And then there is the day of reckoning.

When he came to my office for advice four years later, he was a complete wreck. Less than $120,000 remained of his gambling good fortune. He could not find a decent job. His “upscale” home mortgage was in default while the real estate sellers’ market tanked. His father wanted a substantial loan to come home because they didn’t like Florida.

Be careful of what you wish for.

Happy Cup Match. Keep it fun, clean and cool, then head home knowing you haven’t lost the farm, or the rent money.

Link:

Gambling: Understanding the Odds in Numbers, The Real Risk, by David Spiegelhalter. http://www.bbc.com/future/story/20120606-getting-the-odds-on-gambling

Martha Harris Myron CPA PFS JSM: Masters of Law — International Tax and Financial Services. Pondstraddler* Life™ Financial Perspectives for Bermuda Islanders with Multinational Families and International Connections on the Great Atlantic Pond. Contact: martha@pondstraddler.com