Follow up (Part A) to Gambling Machines where I talk briefly about why I left Zero-Sum games out of the episode, how Italy is facing the similar problems with slot machines and insurance vs gambling. Thanks to Jordan, Nick, Andrew and Frank (from Italy).
Transcript available
This is Pragmatic follow-up part A for episode 26, Gambling Machines. I'm John Chidjie. And follow-up for the month of July is proudly sponsored by LIFX. Spelled LIFX, it's a smart, energy efficient, Wi-Fi enabled LED light bulb that you can control with your smartphone. You can change the brightness, colour, tone, etc. from the app and it comes with a range of cool effects and it's great fun to use. Visit LIFX spelled LIFX dot co slash Pragmatic and use the coupon code Pragmatic for 15% off the total price of your order. If you're a developer, there's an SDK for iOS, Android and Ruby and there's a competition currently open until the 25th of July 2014. If you submit an app for controlling LIFX bulbs by that deadline, you're in the running to win enough LIFX bulbs to fill every light socket in your house as well as get free advertising for your app through LIFX. Check out blog.lifx.co for more information and be quick. So I have some follow up from a few people about this particular episode. So I'll start with Jordan Cooper who does the Blenderhead podcast as well as Tech Douchebags, the latter of which is now on 5x5. And he's had involvement with poker in the past and in quite some depth. And I also got some more feedback from Nicholas Radcliffe also along the same lines, which which is to talk about zero-sum gambling, as in gambling between a group of friends or whatever whereby there's a fixed amount of money on the stakes and so on, and there's only so much to go around. Whereas gambling where there's a rake or a house, as Nicholas puts it anyhow, is a very different thing. Now I specifically avoided talking about that regarding and I stuck with slot machines, and I suppose the reason that I did this is is that you're playing, well first of all, you're playing a machine, you're not playing another person, which is with slot machines, and I wanted to separate those two. Second of all, they're the single biggest source of government gambling revenue in my country, and as we'll see in a little bit, in other countries as well, it's quite significant. So they're also very widespread, and hence there's a lot of people that have access to them. So if you count the number of people that have actually played a poker machine versus the number of people who have played poker, the game, the card game, then I think you'd find more people have played pokies than have played poker certainly with money so I can sort of, I may consider other topics like poker in the future since when I was a child I used to play that poker quite a lot but you know we played with matchsticks but you know never with real money but we'll see how we go, so anyway also had some feedback from Frank from Italy about some of their machines so their payout rates were at only 74% and that was only recently tweaked, I think it was in 2011 when that was increased 74%, but that's still much less than our payout rate in Australia. So as of mid last year, that would actually apply to what they call comma 6A slot machines, also known as new slot three, also known as AWPs. So in that particular class, a poker machine in Italy has a maximum bet of one euro and it has a 100 euro maximum payout. But they're slightly different from video lottery machines that they call their other poker machines. And these ones can be installed in gaming halls, betting shops, bingo halls. So the AWPs, however, can be installed in bars and restaurants and hotels. So they're very, very widespread. In fact, they're probably more widespread than here in Australia. And if they're not, it'd be pretty close. The numbers are quite staggering. So those particular machines in Italy alone raised 32 billion euros in 2010. That's just insane to me. That's a lot of money. So I suppose the point is that that's just Italy. I talked about Australia, a little bit about the US, but mostly about Australia. So there's some figures from Italy. So it is a worldwide problem and it's getting worse. It's not just Australia. It's happening everywhere. And it's a bit of a worrying trend. So anyhow, I also got some wonderful feedback from another listener called Andrew Rose, and he addressed the issue 'cause of his background with insurance regarding a comment I made early in the episode about my grandmother seeing insurance as a form of gambling. So I really think the way that Andrew wrote this is just, it's worth reading verbatim, so I'm gonna do that. Although one can view insurance as a simple financial gamble between the insured and the insurance company, and in which the house always wins, there is a key difference that exists in that insurance contracts are used to make uncertain cash flows more predictable for the consumer. To be explicit, one should view insurance as a volatility hedge. Let us take the example of burglary insurance. The purchaser of burglary insurance pays a premium to the insurance company. These cash flows are predictable to the consumer as their timing and magnitude are known in advance. This certainty replaces the alternative situation where the individual is exposed to potential cash flows which are unknown in both timing and in magnitude. In the example, I would have no idea when my house may be burgled nor any idea what will be stolen, if anything. So, although the insurance company charges a premium such that on average policyholders will make an overall loss over time, they are also providing some amount of predictability and certainty as recompense for this." So I mean beautifully put thank you Andrew and I could not have put it better which is exactly why I read it word for word. So yeah bottom line is some people will simplistically see insurance as a form of gambling, the reality is it's not. Although one of the things that I do find frustrating about insurance has to do with all of the different clauses that insurance companies can use and will regularly use in order to wriggle their way out of actually paying out. So when you do have a claim, there's all sorts of ways that they can get out of it. And for smaller claims, they typically don't bother, but for the bigger claims, it can get quite nasty. So in any case, the episode wasn't about insurance, but I sort of mentioned that as an aside during the episode. I thought it was worth revisiting and thank you very much to Andrew for responding. So there's one more thing I just want to throw in there as well and that is that there, just just quickly on the poker thing is that there's an excellent film called Rounders by John Dahl and it is a really good movie. It's got Matt Damon in it for just to quote one of the big names in there and anyhow, It's just about poker and I'll wrap up on this is that his character during the game was describing poker to someone and says, "What is it? You think the five guys who reach the World Series Poker Final every year are just the luckiest guys in the world? No, it's about skill and it's not about luck. Whereas gambling machines, it's all about the statistics and the statistics are that you will never win, not in the long term." And that's it. [BLANK_AUDIO]
