What is the Difference between Gambling and Investing?
Introduction
"It is generally agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of stock exchanges." - John Maynard Keynes
What is the difference between gambling and investing? In order to differentiate between the two, we should start by defining them. Comparisons are often made between the two activities, but I've never seen the terms explicitly defined. If you're sufficiently motivated, I encourage you to try to define the terms 'gambling' and 'investing' before you continue reading this essay... you may surprise yourself. (Go ahead, I'll wait here for you.)
What definitions did you come up with? Are investing and gambling mutually exclusive, or is there an area of overlap? And are the boundaries clearly delineated, or is there a gray area in the middle?
Let's see what the dictionary says. Here's what the Random House dictionary on my bookshelf says: "Gamble: To play at any game of chance for stakes. To stake or risk money, or anything of value, on the outcome of something involving chance." "Invest: To put money to use, by purchase or expenditure, in something offering profitable returns." Both seem reasonable upon cursory review, but a closer look reveals that they're not terribly helpful. The definition for gambling could apply just as well to investing, and vice-versa.
The Dictionary.com web site says: "Gamble: To bet on an uncertain outcome, as of a contest. To take a risk in the hope of gaining an advantage or a benefit." "Invest: To commit money or capital in order to gain a financial return." Again, the distinction isn't clear. In investing, are you not betting on an uncertain outcome? Are you not taking a risk in the hope of gaining an advantage or benefit? In gambling, are you not committing money? Are you not doing it in order to gain a financial return?
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