In May 2000 I was a guest in the home of my brother Dick and his wife Lisa, who at that time lived near Houston, Texas. My then-wife Shirley was off on a women’s religious retreat and I chose to spend time with Dick and Lisa rather than being a temporary bachelor in Las Vegas.
Without going into specifics and with me as the exception, my family is largely very conservative, especially when it comes to religion. I’m the only gambler in the group and in many ways have been a non-conformist compared to the others. On the second day of my visit, the discussion got around to video poker and my success — or lack thereof.
(Four months after the visit, royal flushes started coming out the of woodwork and I would begin the million-dollar six month period that would later be chronicled in my Million Dollar Video Poker autobiography. While visiting in Texas, however, there was no way for anyone to know that “fame” and success was right around the corner. At the time of that particular vacation, I’d been living in Las Vegas for seven years and had experienced moderate-but-not-great results.)
I told them that for the first four months of 2000 I was ahead about $60,000. Lisa asked me how much money I usually made playing video poker and I told her that $60,000 was slightly below my recent annual average — but that every year was different and scores fluctuated. I had some additional income as well and Shirley and I lived modestly. We were happy with our lifestyle.
Lisa then suggested that I quit gambling for the year. This out-of-the-blue suggestion took me by surprise. “Why would I do that?” I asked.
“You’ve made your yearly goal,” she explained. “Why risk giving it all back?” I reminded her that my “goal” was not the same as my recent yearly average.
Lisa saw video poker as a risky enterprise — and in her mind this risk was to be avoided if at all possible. She believed the casino always had the advantage and even though I claimed to be a winner over the preceding few years, she believed that in the end, the casino would always win. I guess you could say that she had a “quit while you’re ahead” philosophy.
My view of gambling at video poker is a lot different than that. I believe that there are cases where the knowledgeable player has the advantage. I limit myself to these cases and believe that over time my wealth will increase. There will be ups and downs along the way, of course, but so long as I bet relatively small amounts compared to my bankroll and always have the advantage when I bet, I’ll end up fine.
According to economist Frank H. Knight in his Risk, Uncertainty, and Profit, there’s a difference between ‘risk’ and ‘uncertainty.’ “The practical difference between . . . risk and uncertainty is that in the former the distribution of the outcome in a group of instances is known . . . while in the case of uncertainty, this is not true . . . because the situation dealt with is in high degree unique.”
Investing in video poker has risk, but the characteristics of a 52-card deck are well known mathematically — at least to those of us who have studied this. Investing in the stock market is uncertain, because of external events — like wars, famines, weather, and politics, the turmoil in Greece, among other factors. The year 2015 is similar investment-wise to certain other years in some respects, but in many ways it has one-of-a-kind characteristics.
Lisa, however, was quite comfortable investing in the stock market. She still spends ten hours or so a week doing her research and making the buy / sell / hold decisions for her family. She would not dispute that there is uncertainty in these investments, but it is uncertainty she is used to. Her knowledge and experience have convinced her that she is able to thrive in that environment.
I, on the other hand, pay a financial advisor to make those types of investment decisions for me. I COULD become good at this, I suppose, just like I COULD become good at changing the oil in my car or at preparing gourmet meals, but there are things in life that I pay others to do for me.
Lisa still has no knowledge or experience regarding “investing” in video poker. And whether I define it as ‘risk’ or ‘uncertainty,’ since video poker is outside of her expertise, her rational decision is to avoid investing in it. So Lisa doesn’t gamble. She’s visited Vegas a few times over the years and she’s yet to drop money into a video poker or slot machine.
But just because it is outside of HER expertise doesn’t mean it’s outside of mine. Video poker is what I do and who I am. The rational choices that Lisa makes and I make are very different — partly because of different interests and different expertise.
In the case at hand from 2000, Lisa’s suggestion that I quit for the year was a well-intentioned mild one. Although we are in-laws, our lives are separate enough that neither of us expects the other to “obey.” The fact that I was going to continue gambling didn’t cause her much distress. She may well have believed that eventually I was going to get my comeuppance, but if so she kept this to herself.
But mine is hardly the only family where differences of opinion arise about how smart it is for someone to gamble — and in many cases the disagreement is between spouses. These disagreements can get ugly, and sometimes lead to divorce or other unpleasant conclusions.
I can easily defend my choice to invest in video poker. I am fortunate to have a positive track record that “proves” I know what I’m doing. (Actually no such track record can prove that. How much skill and how much luck was involved in anyone’s scores can always be debated. But my track record “suggests” that I know what I’m doing.) I am also fortunate that my wife (Shirley then; Bonnie now) believes I know what I’m doing. Many people on the wrong end of the “to gamble or not to gamble — that is the question” argument do not have such a track record — or such a wife. Whether it’s smart for a particular person to gamble or not is often a tricky question — and one that I’m glad I don’t have to answer for others. Somehow I regularly have others second-guess whether or not a particular gambling play I made was a sensible one or not. That comes, I suppose, from me making certain parts of my life public.
With that caveat noted, the main point in my argument today is that it can be perfectly rational for some people to wholeheartedly believe that gambling is a risky expense to be avoided. It is also rational for others to wholeheartedly believe that certain forms of video poker offer profitable investment opportunities.