Chapter 11. Get Rich Quick
Financial theory has evolved under the assumption that people are risk-averse. That is, people try to avoid taking risks unless they are compensated for doing so. But this theory does not describe people's behavior in reality. People routinely take risks for which they are not, on average, rewarded. For example, gamblers at the casino are accepting risks that are not rewarded. Every game is stacked in the casino's favor. In his book Against the Gods,[1] Peter Bernstein notes that gambling is drawing more people than baseball parks or movie theaters. So if gambling is a losing game, why do so many people gamble?
Many people gamble occasionally for entertainment. They know that they will lose, on average, but that is considered ...
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