The conceptual and empirical relationship between gambling, investing, and speculation
Obviously, higher similarity threshold usually implies higher precision rate and lower speculation: Higher co-appearing frequency indicates closer relationship . Let's understand Investment vs Speculation, their meaning, key differences in entire family can be secured such as Education and Marriage expenses of children. Speculation involves a relatively higher level of risk and more uncertainty of. Day trading and high-frequency trading, where stocks are bought and sold in the same Conceptual relationship between gambling, investing, and speculation.
Finally, Jadlow and Mowen found that material needs, competitiveness, financial conservatism, and numeracy proficiency were predictive of a tendency to engage in both gambling and stock trading, but that impulsivity and emotional instability were negatively related to stock market trading but positively related to gambling. Overall level of gambling is related to overall level of speculation Considering the similarities in cognitions, motivations, and personality, it is perhaps not surprising that there is also some relationship between overall levels of speculative stock market activity and overall levels of gambling.
Higher Speculations (Helge Kragh) - book review
Most research has found this impact to be fairly specific to lottery-style stocks having low prices, high volatility, and highly skewed returns. Similarly, Chen, Kumar, and Zhang found that in the U. Kumar found that lottery-stock purchase was higher in regions of the United States with demographic characteristics associated with lottery ticket purchase i. Similarly, Kumar, Page, and Spaltfound that regions of the United States with higher Catholic to Protestant ratios had a stronger propensity to hold lottery-type stocks.
A couple of studies have examined the relationship between casinos and financial markets. Liao found that casino openings in the United States were related to subsequent increases in financial portfolio risk among individuals with demographic propensities associated with gambling.
One of the first investigations on this issue was by Ozorio and Fong who found that in a sample of Macau casino gamblers, the level of gambling risk was positively correlated with level of investment risk. However, the reverse relationship was relatively weak — most gamblers did not engage in high-risk stock trading. In addition, high-risk stock traders a were found to engage in a significantly wider range of gambling activities and gambled more frequently than traditional gamblers, and b had a preference for skill-based games i.
The large majority of South Australian day traders Day traders also had a higher frequency of gambling involvement compared to the general population and had a distinct preference for skill-based formats such as poker, casino table games, sports betting, and horse and dog racing. Further evidence of a connection to skill-based formats was seen in a principal component analysis, which found gambling to dimensionalize into chance-based formats and skill-influenced formats, with day trading loading primarily on the latter.
This relationship between engagement in stock trading and skill-based gambling is something that has also been found by Odlaug, Marsh, Kim, and Grant among problem gamblers. Compared to the general population, day traders were also more likely to be male, non-indigenous, in poorer general health, married, and to have higher educational attainment. Significant overlap between problem gambling and problematic stock trading There is mounting evidence that stock market trading can become excessive and addictive similar to other behaviors e.
In a sample of active Greek stock traders, gamblers, and a control group, Konstantaras and Piperopoulou found that The clinical profiles of problem gamblers and problematic stock traders have been found to be comparable. Shin, Choi, Ha, Choi, and Kim studied South Koreans who sought treatment for problem gambling due to horse race betting The two groups were equivalent in terms of addiction severity, age of onset, debt size, and comorbidity profile.
However, financial speculators tended to be better educated, live with a spouse, and to be employed full-time. Finally, there is significant overlap in the prevalence of problem gambling and problematic stock trading.
In a convenience sample of Greeks who traded on the Athens stock exchange, Piperopoulou found that more than one-third of the sample was probable pathological gamblers and up to half had problematic levels of stock trading.
Discussion and Conclusions Our conceptual review of gambling, speculation, and investment showed that investing is clearly distinct from gambling on many different attributes. The attributes that most clearly distinguish the two are: In addition, investment tends to involve a different set of activities and instruments, has a longer term perspective, has lower risk, a greater likelihood of positive expected returns, greater economic utility, and there is usually no specific point in time where there is an outcome or event associated with the asset whereas gambling always involves a definitive outcome associated with a definitive event.
Although the role of chance versus skill is often identified as something distinguishing gambling from investment, this is a not a strong differentiator, in that a several forms of gambling are highly influenced by skill, and b although most investors heavily research their choice of investments, their choices usually do not achieve higher returns than the market average, a result which could be equally well achieved by simply choosing a random selection of stocks.
Our conceptual review also revealed that financial speculation is conceptually intermediate between gambling and investment. On the other hand, some of its attributes are very gambling-like. For example, in most forms of speculation something is being staked e. Also, as occurs in gambling, most forms of speculation have a definitive outcome associated with a definitive event.
There is comparatively little literature on the empirical relationship between gambling, speculation, and investment relative to the amount of literature on their conceptual relationship.
One line of investigation has identified similar personal attributes of gamblers, speculators, and investors. For example, there appear to be similar cognitive biases, with all three groups tending to be overconfident in their decisions, having a propensity to seek out confirming evidence for their beliefs and actions, having an illusion of control, and being highly loss-averse.
Investment vs Speculation | Top 7 Differences You Must Know!
Motivations also have parallels, with evidence suggesting that the dominant motivations for all three groups are often the same: Personality overlap is seen in the fact that sensation-seeking, risk-taking, material needs, competitiveness, financial conservatism, and numeracy proficiency are common to all three groups, although impulsivity and emotional instability may be more strongly associated with gambling, and high risk tolerance being specifically associated with gambling and speculation.
At a population level, there is evidence of a consistent association between overall lottery activity and overall involvement in speculative lottery-type stocks.
Similarly, there is evidence that the introduction of casino gambling increases portfolio risk and that the introduction of lottery-linked savings accounts has a negative impact on casino expenditure. A similar relationship between gambling and speculation has been observed at an individual level.
Potentially because of their heavy involvement in traditional forms of gambling, there is also tentative evidence that a the rates of problem gambling are significantly higher among speculators, and b the problematic levels of speculation are strongly correlated with problematic levels of gambling. The empirical relationship between gambling and speculation is likely due to their conceptual overlap, which results in similar types of people being attracted to both activities.
Financial speculation ostensibly entails a high degree of skill and knowledge, which helps explain why speculators are highly involved in skill-based forms of gambling. The reverse relationship will not be as strong, as many skill-based gamblers will not perceive themselves to have the level of knowledge or income needed for financial speculation. In contrast, people who eschew high risk, do not perceive themselves to be less well off compared to others, and are knowledgeable about how both gambling and the financial markets work will be more inclined to avoid gambling and speculation in favor of investment.
Implications and future research More research is needed to further elucidate the empirical relationship between gambling, investment, and speculation as well as the basis for their similarities and differences, as most of the above results are somewhat tentative. However, an implication of the existing research is that because of its apparent strong empirical relationship and moderate conceptual relationship, financial speculation should arguably be listed as an additional activity when assessing both gambling involvement and problem gambling.
The true prevalence and nature of this condition and its natural comorbidity with problem gambling is somewhat unclear, as there have only been a few studies that have directly investigated this issue. Rather, most of what we know about this condition is derived from population surveys of gambling and people who have presented themselves to problem gambling treatment centers.
However, it is uncertain the extent to which traditional problem gambling assessment instruments capture problematic stock trading. The other issue is that although it is evident that a portion of problematic stock traders present themselves to problem gambling treatment centers, it seems likely that only a minority of speculators would think to seek help at such a facility, with these individuals likely having disproportionately high rates of comorbid gambling-related problems.
PHD provided commentary and edits to the manuscript. The authors declare no conflict of interest.Middle School Vs. High School RELATIONSHIPS!
Funding Statement Funding sources: No financial support was received for this study. The nature of gambling. How well do financial experts perform? A review of empirical research on performance of analysts, day-traders, forecasters, fund managers, investors, and stockbrokers EFI Report No. Stockholm School of Economics. The ethics of speculation. Journal of Business Ethics, 90 S3— Attempts to explain gravity failed, as did attempts to apply it to chemistry, but the theory continued to be attractive even after it was abandoned — it "ought to be true even if it is not" Michelson — remaining popular with religious believers and spiritualists unhappy about the materialism associated with traditional atomic theories.
Though Lorenz had pointed out the incompatibility with quantum ideas early, Gustav Mie attempted to integrate relativity into the electromagnetic world view, with a field theory of matter.
These ideas were particularly popular in Germany and influenced mathematicians and theoreticians such as Hilbert, whose program envisaged reducing physics to pure mathematics, and Weyl. In this context Kragh also discusses Einstein's rationalism. Based on relativity and making much of constants such as the number of electrons in the universe, Milne and Eddington undertook "grand and enormously ambitious projects aimed at a full reconstruction of physics modelled on abstract mathematics".
There were some empirical results from these projects, but "the agreement was not all that important to Eddington, who was unwilling to let a conflict between a beautiful theory and empirical data ruin the theory". Support for such rationalist cosmologies was largely restricted to the United Kingdom and a high profile debate in Nature in pitted proponents against critics such as Herbert Dingle.
Looking at debates over whether cosmology was scientific or not, Kragh focuses on the steady state theory, originally proposed by Hoyle and Bondi and Gold.
This took as a fundamental postulate "the perfect cosmological principle", that the large-scale features of the universe do not vary with either space or time.
What some scientists saw as methodological virtues of the steady-state theory, others saw as deficiencies and reasons to distrust it. Being easy to falsify was a methodological strength of the steady-state theory, but actually being falsified was not so good for it.
Hoyle and Narlikar continued with variants, however, notably oscillatory steady-state theories. Heisenberg's S-matrix theory emphasized observable states before and after interactions. In the "bootstrap programme", Geoffrey Chew applied this approach to hadrons and the strong force, making all hadrons equally fundamental an idea which influenced Gell-Mann.
He refused to generalise this too far, but he saw the potential application to other forces and even to space and time, and turned to more philosophical justifications for the bootstrap when its empirical failure became clear. These traditions are pretty much defunct as research programmes.
In the second half of Higher Speculations Kragh turns to strands of speculative thinking that still, to a greater or lesser degree, drive research. Kragh focuses on a few of the many ideas that have involved varying constants of nature. Following on from the ideas of Eddington — and using the "large number hypothesis", where very large dimensionless constants that are roughly the same must be related in a fundamental way — Dirac constructed a cosmology with a time-varying gravitational constant.
In the s a number of physicists considered the possibility of a varying fine structure constant, an idea which has seen renewed interest following potential testing by quasar observations.
And between and there was a burst of work on cosmologies with varying speeds of light VSLthough "interest in the idea has since declined". For instance, a gambler will consider a game of American roulette rather than be speculating in the commodities market.
However, the payout is only 35 to 1, while the odds against winning are 37 to 1. Investment vs Speculation — Key Differences Let us understand some of the differences between an Investment vs Speculation: An investment involves an asset with a hope of securing returns over the principal amount in the future.
On the other hand, speculation involves conducting a risk financial transaction with the aim of making large-scale gains from a single transaction. Investments are generally held for a long period of time generally more than a year.
Instances like real estate and life insurance are held for time horizons like years. Speculation is held for a very short time span usually less than a year and can even be on a forthcoming event.
The amount of a risk assumed is relatively moderate as compared to speculation. Since an investment is done largely by the middle class working community, they would be putting the spare money of their hard work, which they expect to earn a stable return. They are ready to part with their savings if it offers a definite return. Speculation will focus on getting high returns in a relatively shorter amount of time and thus quantum of risk is very high.
An investor will be using their own funds for investing whereas Speculators will make use of borrowed funds and luring the borrowers with attractive returns. The above point also reflects the attitude of the investors and speculators. Investors will generally follow a cautious and conservative approach while considering the investment along with the risk appetite they can absorb.
Speculators believe in an aggressive approach highlighting attack but careless attitude.
As the returns are far too attractive, and the window of opportunity is very small, this behavior will easily get reflected.