I wasn't talking about starting a casino or surgery center. I was talking about playing roulette or turning yourself into a human cat hybrid.
The story is about companies whose business model is simply to take investment money. They do not try to provide the service they claim.
There are all sorts of penalties for bad behavior on behalf of companies. Of course, that doesn't guarantee they'll make money, but I think it's a very valid point that we're allowed to waste our money on all sorts of dumb bullshit, but not on something like investing in startups, which at least has a possibility, however remote, of resulting in some sort of return.
Why do you think we have these rules, since a free-for-all is the default? Is this a barrier to entry that protects the rich, or a barrier to getting ripped off that protects the less rich? Or both?
Chesterton's fence and all that.
You are allowed to throw all your money away if you want.
These rules are (at least partly) protecting you from having someone take your money under false pretenses.
You're correct that I'm allowed to throw my money away if I want, so why am I not allowed to do this?
Yes. Everyone I know going to a casino can be asked how much they plan on losing a day. Almost all will respond with reasonable (for their finances) answer. The others still have an answer that I may think is unreasonable, but that's just a greater percentage of disposable income going to gambling than I think makes sense.
I don't even think most gambling addicts think they are going to make money, any more than most smokers don't think they're immune to cancer. There are some areas (poker, sports betting) where a lot of people think they will make money, but that's because they're games of skill and some people can make money there. And people overestimage their own skill.
Casino gambling is only a financial strategy in the most unlikely scenarios, like the infamous MIT blackjack team.
By and large it’s a recreational activity. There’s the dopamine hit from the risk and another dopamine hit from your host paying for everything because you’re willing to spend 6-8 hours at the tables on your vacation. The slots are definitely a worse value proposition even with the higher comp rate.
The simple fact is that recreational gambling is less about strategy and edge and more about proper risk management. If your bankroll lets you Kelly bet at a level the marketing execs want to see then you will have a good time with predictable max losses.
I can’t imagine being entertained by slots, but if someone is and the house edge isn’t completely obscene, which sadly the gaming board permits, then even there there’s a reasonably priced vacation to be had with a Kelly betting strategy.
The wikipedia page[1] is decent enough. Some searching will find various gambling and math sites that go into further detail, but I don't have one in particular I'd recommend over the encylopedia page. The super simple overview is that one always bets a fixed percentage of one's bankroll. That means as one wins one's average bet goes up and as one loses it goes down. The Kelly criterion is how one determines the optimal percentage.
Strictly speaking the correct Kelly bet for a house advantaged game is zero, so it only applies when the player can gain an edge, such as with blackjack advantage play or sports betting[2]. It's not too difficult to adjust the strategy for a house advanced game. The player just has to reckon what the comps (which are predictable, being based on play time and average bet size) and the rest of the experience are subjectively worth. For many persons the correct bet size is zero! If one is playing for entertainment and comps and not with an advantage over the house, then one can expect to spend a significant chunk of one's bankroll!
[1] https://en.wikipedia.org/wiki/Kelly_criterion
[2] My understanding is that it's possible for a savvy sports bettor to have better knowledge of the true odds than the bookie and thus make advantaged bets. On the other hand, far more persons believe that they do than actually do.
Only for the very first round. For every subsequent round it’s a game of consolidation. That’s a very ugly game.
A lower possibility than the casinos or lotteries, if we're talking retail investment in early stage startup pitches you have no affiliation with. The reluctance of everybody to acknowledge this is the reason the law exist. Most people walk out of casinos having lost some of their money. Most retail investors in random business propositions will never see any of that money again.
When gambling is restricted, gamblers generally don't argue it's a conspiracy to prevent them getting rich. The delusion that retail startup investment isn't the bigger gamble with worse odds (unless you're in the leagues where you can personally prod the founders on a daily basis) is why accredited investor rules exists. It'd be a lot easier to believe arguments relaxing them were sound if the people making them were arguing it was depriving them of fun rather than depriving them of the opportunity to get rich.
What do you think is the expected return of investing in a private company? I don't have data to back this up, but I'd bet it's negative — especially if you hold common stock, or whatever non-preferred equity retail investors would get.
And if, on top of that, we relaxed the guard rails preventing people from being scammed? I think the odds would be much worse than you'd find in a casino.
Anyway, I’m not proposing anything. I’m fine with the current status quo.
Casinos have to be licensed and follow particular requirements about e.g. payout rate. Companies can solicit investment from the public, they just have to register and follow particular reporting requirements; a company with $310M can certainly afford to be public (there was a time when IPOs were much smaller than that).
That actually isn't true. In the US, almost all states have restrictions on gambling.[1] These are generally enforced by criminalizing or requiring government oversight of those offering gambling services.