Poor People Should Probably Gamble More

Well, okay - maybe not in the sense that you think. It's not generally a winning proposition for poor folks to spend a lot of time at the casino, chasing losses and re-gambling their winnings until they're left with nothing but a third mortgage and an empty fridge.

But hear me out.

Meet Mary

Mary is a pretty typical college student; she's not dumb, but she's young, and she makes mistakes. She typically doesn't have very much cash available to her, beyond what it takes to pay rent and eat. Minor financial incidents deal serious blows to her because she's so close to the edge so much of the time, and she has trouble dealing with them in intelligent ways because she gets so stressed over them.

A little while ago, Mary got pulled over and was written a ticket for driving an unregistered vehicle. She's since resolved the vehicle registration, but the ticket was substantial for her, $250, and she rarely has that much cash to spend at any one time, living mostly hand-to-mouth off of the ~$100 a week she's left with after paying rent, some of which has to go towards gas, utilities, etc.

The ticket is now extremely overdue, and she's cruising for a bruising: if she doesn't pay it within the next three days, she's going to lose her driver's license, which would be a disaster (she's a tutor, and she has no affordable way to get to her students' houses other than driving herself). If that happens, she'll ultimately have to pay another $100 to the DMV as a penalty, in addition to what she owes on the ticket, not to mention the black mark on her record.

Let's assume for the moment that Mary has no safety net; there are no friends she can ask to float her a loan, no family members that she can reach out to, etc. She's only got $130 to her name, and her next paycheck won't show up for another week. What's a girl to do?

Well, Mary lives within an easy ten minute drive from the Mohegan Sun casino. And that's exactly where she should go, to slap the remains of her meager wad down on black, and cross her fingers!

WTF? Roulette has a house edge, you dummy!

No kidding. And even if it's a tiny edge, you're going to lose in the long run if you try to play roulette to make money. On a red/black bet, your odds of winning are about 47%, whereas the payoff is simply your bet, so the pot odds there are not working for you, and in a vacuum, this is a stupid bet. Worse, when people show up to the casino with $100 to gamble, they're likely to lose a lot more than that house edge would suggest, because they tend to keep gambling until they've placed a lot more than $100 in bets, and that edge gets applied to the total amount that you end up betting over the course of the night, not to the size of your chip stack when you start!

But this is a special situation. Let's evaluate Mary's two options here, following along with my fiction that these are the only two options available to her:

• Option A: Do nothing. Mary's payoff here (we'll define this as compared to her current assets minus liabilities) is a completely certain -$100, because she won't be able to pay the ticket, and she'll eventually have to pay the DMV fee in order to keep driving, along with the ticket fee (which she already owes).
  
• Option B: Gamble $130 on black. Here we've got two possibilities:
  
  
  
  1. She wins the bet, walking away with $260, with which she's able to pay her ticket and come out with $10 to her name, for a net gain of $130, with a probability of about 47%.
     
  2. She loses the bet, goes home with nothing, for a loss of $130, and still ends up owing an additional $100 to the DMV because she can't pay the ticket. That's a loss of $230, with a probability of 53%.
     
  
  

Now, we check expected values: the expected value of Option A is -$100, because it's a certainty. The expected value of Option B is $130 * .47 + $-230 * .53 = 61.1 - 121.9 = -$60.8! Option B, going to the casino and "wasting money" on a "losing bet", saves Mary about $40, on average, which is a full 40% taken off of her expected loss!

She's screwed either way, but by going to the casino, she's chopped 40% off of how badly she's screwed, on average - not bad for a few minutes work!

And here you were, thinking gambling was nothing more than a tax on the stupid.

The Moral

It just so happens that through sheer stupidity I landed myself in this exact situation when I was in college, except that while we assumed Mary had no options, I actually had many at my disposal that I was too foolish, stressed, and/or embarrassed to pursue (I could have asked any of a dozen family members or friends for the money, and I could have done a bunch of other things to earn it myself that only occur to me now that I'm older and wiser about such matters, not to mention all I could have done to avoid the problem in the first place).

In the end, though, I did nothing, my license was revoked, and I had to live without one until I was able to come up with the extra cash that it took get it back. Only now do I realize that even if I was too stupid to come up with something smart to do to pay that ticket, even doing something as idiotic as going to the casino and putting my entire net worth on the line on a losing bet would have been smarter than doing nothing!

The moral here has nothing to do with this particular incident; it's a general fact of our world that poor people have to deal with all the time: there are many, many circumstances where a lack of current liquidity takes away even more of your money later. Many sorts of debt fit this description, as do many governmental interactions, bank fees, etc. And unfortunately, the approach that many people in these situations take is to do exactly what I did, throw their hands up, moan "I just don't have the money!", and get hit with the fees/rate hikes/credit report consequences/etc. But if you're within any reasonable distance of the money that you need, that might not be the best option - depending on the situation, it could even be worth it to take the more unlikely roulette bets, such as putting it all down on #17! Run the numbers, figure it out, don't just sit there - what've you got to lose?

Further, while in my example I had many other options, in the real world this is not always the case: it may have been easy enough for me to borrow $100 from my parents (even if I was too stupid to ask when I still had time), but if I was $50k in the hole, or all my family and friends were as hard off as I was, it could easily become more difficult to close the gap. Of course, with more money on the line I'd be more likely to find a bet on the stock market with less of a house edge than a roulette wheel (keep in mind it takes a few days for trades to clear, though), but the point remains.

Real world safety-nets like bankruptcy don't necessarily change this picture too drastically, because while they may partially shield you from some of the consequences of doing nothing, they shield you equally well from the consequences of the losing end of your "Hail Mary" bet.

Gambling may be "stupid", but in the face of certain loss it can seriously mitigate the damage if you have no other options. The poverty cycle is helped along quite a bit by compounding effects, and in many cases even the financial damage that small extra fees or rate hikes cause is bad enough to justify making a slightly losing bet. Just make sure you know the odds and the payoffs before you lay it all on the line...

And for God's sake, man, pay your tickets before they're overdue, a few hundred bucks is nothing compared to the pain of trying to get just about anything done at the Connecticut Department of Motor Vehicles!