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Random Riches - Reuven BRENNER

Gambling and Speculation

At the level of the individual, gambling is good because it gives hope of significant wealth to those who have no other prospect of becoming rich. Individual utility (which motivates the decision to bet) is assumed to be a function of the level of individual wealth (and not consumption or happiness) and the gap between current and desired wealth. Betting is therefore a rational strategy for individuals whose actual incomes are significantly less than the desired level and who have no alternative means of gaining substantial wealth. A society that encourages betting and other forms of risk-taking is more innovative and economically successful than one in which the taking of risks is highly regulated by government. In particular, unregulated financial markets help to efficiently allocate resources to their most productive uses, from investors with spare resources to companies trying to raise funds for investment. From this viewpoint, the comparatively strict regulation of betting by government in America is a questionable blessing, since regulation is motivated by the desire to protect valuable sources of government revenue which would be lost if there was a more open betting market. The overregulation of betting results in a welfare loss both to the individuals who are denied the opportunity, however small, of becoming instant millionaires and to society, through an overall reduction in risk taking and entrepreneurial flair.

Reuven BRENNER

holds the Repap Chair of Economics in the Desautels Faculty of Management at McGill University in Montreal. He has published seven books, among them “A World of Chance. Betting on Religion, Games, Wall Street” (together with Gabrielle A. Brenner and Aaron Brown), and “The Force of Finance. Triumph of the Capital Markets”. A World of Chance argues that at one time gambling fulfilled roles performed by venture capital and banking today, and that modern financial institutions retain a strong gambling core. In 2013, the author has been awarded a Queen Elizabeth II Diamond Jubilee Medal for his dedication to academe.