Historical gambling (30 January 2007)

Tyler Cowen links to this WashPost article about historical gambling, a potential future offering at Virginia's horse racing tracks.

Colonial Downs, which offers betting on horse races at 10 sites across Virginia, is pushing for changes in state law so that it can offer a new form of gambling, called historical racing, on which people wager on horse races that have already taken place.

Like Tyler's, apparently, my first response to this was "Wow. That sounds pretty stupid." But that's because I'm thinking that the pleasure of gambling on horseraces lies in the number-crunching and theorizing that handicapping consists of and then the drama of seeing your theories tested as the races happen live. And, actually, I'm thinking that gambling on races when you know the outcome already wouldn't be much fun because you wouldn't ever lose. Where's the joy in that?

That's when it becomes pertinent to consider historical gambling's other, far more accurate moniker: instant gaming. The machine picks an old race, and you instantly bet on a horse based on the odds at the original post time. I'm assuming the specific data (names of horses, date, track location, etc.) is scrambled so you can't fire it into a BlackBerry and get the results. Then you instantly see whether you made the right choice and get paid out according to those odds. It follows that same Pavlovian mechanism of instant gratification that scratcher tickets exploit, only with a throughbred racing theme and even more unpredictable expected returns. (Original odds are based on pari-mutuel wagers; applying them to a single bet seems almost arbitrary. The bet, the odds, and the outcome would seem to have an almost random association in instant gaming.) The charade of handicapping involved in this allows track owners to argue (with a straight face even) that instant gaming is a game of skill and not chance, like slot machines, which, incidentally, are prohibited at Virginia's tracks. It's clear why track owners want slots. They want to transition out of the dying business of thoroughbred racing (R.I.P. Barbero) into the always profitable business of straight gaming. These machines would likely be more profitable than straight slots because with the fluctuating odds, it seems like it would be difficult to mandate a reasonable payout percentage. (Slot machines in Las Vegas return around 90 cents for each dolllar played on them; Nevada requires that they be set up to pay out at least 75 percent of money put in.) Players would certainly have a tough time deducing their expected returns.

But reading about this made me rethink which form of gambling is more "dangerous" to the gambler, the game of pure chance, which inspires the average gambler to superstitious flights of fancy, or the game that promises the gambler a chance to use his skills, which probably leads to his overrating his responsibility for success (like the traders Nassim Nicholas Taleb likes to excoriate) and ignoring the amount of chance still involved. Is it better to handicap and lose, or guess randomly and lose? Handicapping horse races (and making sports book bets or playing poker) invites you to stake intellectual capital along with cash, and the former can be hard to recoup. At least losing at a slot machine won't bruise your ego along with emptying your wallet.