Is buying risky financial assets a form of gambling?

Published: Tuesday, Dec. 18 2012 6:30 a.m. MST

Another problem with this definition is that it doesn't include purchase of lottery tickets if the jackpot is large enough. When lotteries fail to pay for one or more rounds in a row, the prize money is usually added to the next round's winnings. In this case the expected payoff from buying a lottery ticket exceeds the cost of the ticket. Despite this, most people would view this as gambling.

So what is the difference between gambling and the purchase of risky financial assets? A colleague of mine often jokes that gambling involves blinking lights and bells, while financial investment does not. A slightly more accurate assessment might be that gambling is the assumption of unnecessary risk. But what is necessary and what is unnecessary is not something on which everyone will agree.

Is participating in Intrade a form of gambling? Is day trading of stocks? I don't know the answer. But banning either on that basis is bad policy.

Kerk Phillips is an associate professor of economics at BYU.

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