Gambling Is Not a Retirement Plan
bloomberg.com
bloomberg.com
"To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
"Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate. …
"If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison."
I so wish that were the procedure.
Brilliant! So much misery would be avoided if people could be taught that simple rule.
Isn't that not being understood by even the wealthy elite a precursor for a Bernie Madoff? I think 'financial literacy' is an unobtainable panacea when most, even supposed economists, don't have much more than of an insight as to what Money actually is and will simply often repeat what was forced fed to them in school about fiat.
The truth is the concept of Money has evolved so much in just the last 10 years, that PhDs and Masters thesis written on topics just 5 years ago are some what moot when seen in this light.
As for the notion of a 20% risk-free return is concerned, I think the same adage applies: a fool and his money are soon parted. Just because the person selling you these products wear suits and sit in a bank doesn't mean he isn't a predatory con-artist that is so typical on every street corner.
They just legitimize their largess with nice decor, lawyers and lobbyists, but that's about the only difference.
But just to be clear, as much as I blame bankers for the financial crisis of 2008 that heavily impacted me despite no actual fault other than being born in the 80s, and these instruments that essentially rob innocent people, I'm also entirely unsympathetic to this occurring:
> It worked so well—earning him 18% a year in dividends, on average—that he eventually poured $800,000 into the investments, called leveraged exchange-traded notes, or ETNs. When the coronavirus pandemic hit, he lost almost every penny.
Why would you wager your entire retirement on a risky bet instead of cashing out your profits, and MAYBE letting your initial investment (essentially house money) ride in this risky instrument to see potential benefits? Maybe I've become immune to the scams and charlatans with ICOs and alt coin pump-dump scams after 9 years in the Cryptocurrency space, but I'm also well adapted enough as Human being to know that common sense has to prevail when it comes to matters of finance.
As an experiment to that end, I occasionally go on WSB just to see how infectious vacuous exuberance is still so rampant post-2008 and it often leads to the same predictable outcome.
Is it any wonder that people make poor choices? We're training them to be bad at math.
"Why are we even bothering to fight the stove fire? Only one in 50 of my appliances has burned!"
2. It’s not only about you. Lottery proceeds are used for all sorts of good things. Being part of an infection chain could infect and kill many people.
3. Note that absent measures, the odds of contracting and dying would rise up enormously.
4. At any rate, that’s not what Levine’s excellent column is about.
About that time, some journal reported that a certain state lottery offered worse odds than the old-time illegal numbers. Whether that is so, I don't know.
The good news for legislators is that people pay that regressive tax willingly. They will beef if you put up the taxes on property or gasoline, but not about lottery tickets.
2. Lottery proceeds are used as an excuse for removing other sources of funding for those things. I've never heard of a case where a public good was better funded after the creation of a lottery. And the people buying lottery tickets tend to be those least able to afford it -- it's a regressive tax.
3. Yes, if you ignore the lotto advertising, the public health announcement is a good use of billboard space. It takes on a completely different meaning, though, in the context of "Ignore statistics and just think about having fun!"
4. The column seems to be about people gambling away their money on risky ventures that will not pay off. Do you not agree that this describes the state lottery?
But that's not really honest, is it? It's not "with good consequences" if the expected value is decidedly negative.
and 1 in 100 odds of dying from a car accident.
it's less about being bad at math, and more about poorly trained intuitions around risk and being consistent in response.
About 36,500 people died in car accidents in the US in 2018 [1], so about 100 people per day die from car accidents in the US.
About 1,000 people are dying per day from COVID, currently [2].
Wouldn't this mean that the odds of dying from COVID are much higher than dying from a car accident? Which would contradict the odds I'm seeing in this thread.
[1] https://en.wikipedia.org/wiki/Motor_vehicle_fatality_rate_in... [2] https://www.worldometers.info/coronavirus/country/us/
Because COVID will (hopefully) become less threatening over time as the pandemic resolves the lifetime odds of death from it will be lower.
[1] https://www.iii.org/fact-statistic/facts-statistics-mortalit...
we don't know yet due to the newness of covid, meaning it's steady-state death rate is uncertain, but it seems very unlikely to overtake car accidents.
based on what we do know about covid now, its trajectory, and comparing to relatives, covid will probably only kill you the first time (and mostly if you're late in life) or not at all, so lifetime odds might end up between 1 in 10,000 and 1 in 5000.
lifetime odds of dying in a car accident is relatively known, at 1 in 100, so probably 50-100X more deadly than covid.
Are we talking about on a trip to a grocery store, or this year, or in a life time?
The real point is not taking unnecessary risks, not just avoiding all risk in life.
I don't think you can tell from a billboard alone how many people think of the lottery as more than just entertainment.
An example is a curfew. If the government announces a curfew and most people stay home, then this supports the curfew, and the authorities have a better chance of enforcing the curfew. If nobody obeyed it then it wouldn't work at all. (At best it would give the police a justification for selective enforcement.)
The same is true of health orders. We have seen quite a bit of cooperation, partly due to people agreeing with the general principle of wanting to avoid spreading the virus, and partially because many people will obey the law even if they don't agree with it. But, this cooperation is only partial and has seemed rather tenuous lately, due to fatigue and fairly obvious lack of enforcement.
There are different ways people obey laws. Most people outside government have fairly vague understandings of law and only follow the general principles. For the specifics of a law to matter, ultimately it depends on most people accepting the authority of the courts in settling disputes. In particular, the police accepting the courts' authority and enforcing decisions is key.
I just finished _Team of Rivals_, an excellent history of Lincoln and the Civil War. Specifically, the political and administrative side of the war, with a lot less focus on the military aspects.
Something that really popped out at me from the book is how often public opinion is in a feedback loop with the law. Both the formal bits and the realist bits.
I think Levine is right when he says that the law is, more-or-less, what the people with tear gas do. But what the people with tear gas can get away with is partly determined by where public opinion is. And even if the laws about restricting police and military actions are often worthless, other laws matter. Like budgets, and procurement rules. Police can't fire tear gas if they can't buy it.
There's no shortcut, but not all is hopeless. Don't give up.
The logic here goes something like: The citizens are unhappy -> The unhappiness translates into different politicians -> Those politicians will de-fund what made the citizens unhappy.
That logic only works if you take politicians at their word. But politics is a sticky thing. It seems a game of musical chairs, where the last one sitting is voted out, but the rest are sitting pretty. And there are so many chairs to fill.
To be blunt: We don't have power. And the protests are merely a reflection of that fact. Why would the politicians do anything but tell us what we want to hear, and then continue to do the same things? There's no benefit, political or otherwise, in giving us what we want.
https://www.youtube.com/watch?v=rStL7niR7gs is a nice refresher on some of the issues.
The truth is most people don't really care about what they say they care about, so politicians can get away with not doing as they say. They are careful to do what they say when they have reason to believe voters actually care.
This week, without riots we cn get police reform through because they are afraid if they don't will remember and vote them out. Next week if we forget they won't. There is a reasonable conspiracy theory that the riots are sponsored by those who want police reforms to fail, but making the police the good guys (better than the increasing mob riot) laws won't pass. Might be unfounded, but it is reasonable.
Crises can also lead to pressure on politicians, who pass laws that have an impact even after the crisis is over, sometimes even good ones. The PATRIOT Act isn't the only bill quickly passed out of fear.
Consider the 1968 Fair Housing Act, which ended redlining, and made it through partly out of fear of further rioting after MLK's assassination. That's a big deal, even if no politicians were voted out.
I think the two party system at the nation level is bad but nothing compared to how all major US cities are 1 party cites. Why change anything when the status quo keeps you in power and lets you fill your pockets.
Similar to financial advisor disclaimers, it should be mandatory for every investment instrument to come with a clearly visible warning: "N% of retail investors trading this asset lose money".
Risk and reward are correlated, thus it shouldn't be legal to advertise the rewards without highlighting the risk.
The structure of financial malfeasance in the presence of the limited liability corporation is as follows:
1) become a corporation. 2) borrow a lot of money. 3) bet it on red. 4) If lose, have the limited liability shell declare bankruptcy, no personal loss. If win, pay back the loans and dissolve the company.
There are many laws trying to prevent this exact scenario, but there is no way to characterize the pattern well enough to catch all of the instances of it. Furthermore, the incentive to find such a pattern always exists, so long as the liability limiting financial instrument (LLC) does.
The pattern is, in a modern context, streamlined through insurers. Insurers, as a rule, are businesses which lie about the applicability of the central limit theorem to investments. Insurers are only interested in increasing the number of policies that they cover. In the lie of the central limit theorem, more policies is less risk. But since a lot of risk is actually correlated, more policies is more correlated risk. Correctly identifying correlated risk is hard, in general, and furthermore, identifying correlated risk is explicitly against the insurance companies interest, as selling policies that they know they can't cover is fraud, but otherwise profitable.
Editorializing, maybe, but I'd say pertinent too.
Furthermore, other researchers found delayed gratification social experiments with children involving more rewards later discovered those children who waited for more rewards later were wealthier later in life. [0](Economic background was found to be just as influential in later studies.)
Gambling (risking money with an expectation less than zero), in all forms, is a losing behavior. It doesn't matter if its lottery tickets, slot machines, three card monte, or financial instruments (without data).
0. https://en.wikipedia.org/wiki/Stanford_marshmallow_experimen...
Which makes sense: If you have grown up knowing that you're not likely to get a promised reward later (because it's never within reach, financially, or because the kinds of things that make it cost so much money to be poor keep coming up), yeah, you're going to take a treat when it's available.
So really the solution isn't "don't buy lottery tickets", it's "solve systemic issues that lead to poor goal planning and wishful thinking, rather than goal planning and realistic thinking with achievable goals that result in better quality of life". That is a lot harder than just calling lotto players stupid.
No that's not the point either. Most people do make their own choices, but the ways in which they come to those choices are influenced by their past experiences. Past experience can have a drastic effect on the choices you make in the future. Abuse/neglect/malnourishment during childhood and/or traumatic brain injury can have profound effects on someone's decision-making abilities later in life.
People should be held accountable for their poor choices, but with the understanding that not all lives have had equal opportunity, and there needs to be actual coaching available, not a bunch of finger wagging. Simply telling someone what's wrong with their life is that they "buy too many lotto tickets" is likely ignorant of the actual underlying problems that person may be facing or had to deal with in the past.
If your solution is to just tell people they need to stop buying lotto tickets, then it's likely to be extremely ineffective.